ATO focus on Division 7A: repayment errors businesses can’t afford to ignore
- Jillian
- 14 hours ago
- 2 min read
The Australian Taxation Office has recently reinforced its focus on Division 7A compliance and the risk of deemed dividend outcomes where private company loan arrangements are not managed correctly. For private groups, the latest messaging is if Division 7A loan repayments are not made correctly, the result can be a costly deemed dividend and unwanted tax exposure for shareholders or their associates. For business owners and directors, this is a sharp reminder that good intentions are not enough — repayments must be calculated correctly, paid on time and backed by proper evidence.
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What the ATO is focusing on
Loans to shareholders or associates that are not repaid in full, or not put on complying Division 7A loan terms by the company’s lodgment day.
Minimum yearly repayments that are under-calculated, use the wrong benchmark interest rate, or are simply paid too late.
Repayments recorded by journal entry only, without enough contemporaneous evidence to prove a real payment was made.
Dividend offsets that are not properly declared and documented by 30 June.
Repayments funded by reborrowing from the same private company, including through interposed entities, which may be disregarded.
Another trap: directions to pay
The ATO is also seeing more errors where one entity is directed to make a payment on behalf of another. These arrangements can work, but only where the paying entity has the capacity to pay and the business retains clear evidence that the payment was made on the company’s behalf.
What businesses should do now
Review shareholder and associate loan accounts before year end.
Check minimum yearly repayments are correctly calculated and paid by 30 June.
Make sure documentation is complete and contemporaneous.
Stress-test any related-party or interposed entity funding arrangements.
With the ATO continuing to focus on Division 7A errors, private companies should not leave these issues until tax return time. A short review now can help avoid a much more expensive problem later.
Source of information:
This article is based on information published by the Australian Taxation Office (ATO) in Make Your Division 7A Loan Payments Count (29 May 2026).
Disclaimer
This article reflects publicly available information regarding the exposure of draft legislation as at the date of publication and is general in nature. It does not constitute tax, financial, or legal advice and should not be relied upon without obtaining professional advice tailored to your specific circumstances. To discuss how these proposed changes may affect you or your business, please contact our advisory team at Wis Australia.
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