Division 7A Loan AgreementA Division 7A Loan Agreement is a document that formalises loans between a private company and an individual.
You MUST seek advice from a qualified professional before using this agreement to check that it meets your specific circumstances. A Division 7A Loan Agreement is a document that formalises loans between a private company and an individual. If a company were to loan money to a shareholder or associate without a Division 7A agreement, the amount may be counted towards the individual’s income for that tax year. This agreement is particularly relevant when a company's loans are audited as loans that are not “formalised” with a Division 7A Loan agreement may be considered a dividend.
Complying under Division 7A
In order for a loan to be compliant and to avoid being deemed a taxable dividend, the ATO indicates it must satisfy the following conditions:
A written agreement such as this one must be established before the company’s income tax return deadline.
The annual interest rate of the loan must be at least equal to the Division 7A benchmark rate.
For loans that are secured by property, as per the ATO’s guidelines, the term should not exceed 25 years
For all other loans the terms should be no longer than 7 years.
The minimum yearly repayment must be met.
Use this Division 7A Loan Agreement If:
You’re a private company and;
You want to provide a loan to a shareholder or associate
What does this Division 7A Loan Agreement Cover?
Lender and borrower details
Acknowledge of loan agreement