Division 7A Benchmark Interest Rate 2025-26: What Changed
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Primary tax-year context: 2025-26
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General information only. This is not tax or financial advice. Consult a registered tax agent for advice specific to your situation.
If you’ve borrowed money from your private company, Division 7A affects you. The benchmark interest rate for 2025-26 is 8.37% — down from 8.77% last year. Here’s what you need to know.
What is Division 7A?
Division 7A prevents private company shareholders (and their associates) from accessing company profits tax-free through loans, payments, or debt forgiveness.
If your private company lends you money and the loan doesn’t meet certain conditions, the ATO treats the entire amount as a deemed dividend — taxable at your marginal rate without franking credits.
The benchmark interest rate
| Income year | Rate |
|---|---|
| 2025-26 | 8.37% |
| 2024-25 | 8.77% |
| 2023-24 | 8.27% |
| 2022-23 | 4.77% |
| 2021-22 | 4.52% |
The rate is based on the RBA’s “Housing loans; Banks; Variable; Standard; Owner-occupier” rate published before 1 July each year.
Why the drop matters
Lower minimum repayments
Division 7A loan repayments are calculated using the benchmark rate. A lower rate means:
- Less interest charged
- Lower total minimum repayment
Example: $200,000 loan over 7 years
| Rate | Year 1 minimum repayment |
|---|---|
| 8.77% (2024-25) | ~$38,500 |
| 8.37% (2025-26) | ~$37,800 |
That’s about $700 less in required repayment.
Existing complying loans
If you have an existing Division 7A complying loan, recalculate your minimum repayment using the new 8.37% rate for 2025-26.
Loan requirements to avoid deemed dividend
To avoid the loan being treated as a deemed dividend, it must be a complying loan agreement with:
| Requirement | Detail |
|---|---|
| Written agreement | Signed before loan made or by lodgement day |
| Interest rate | At least the ATO benchmark rate (8.37% for 2025-26) |
| Maximum term | 7 years (unsecured) or 25 years (secured over property) |
| Minimum repayments | Made by 30 June each year |
Miss any of these, and the outstanding balance becomes a deemed dividend.
Minimum repayment calculation
The minimum repayment includes both principal and interest. Use the formula:
Minimum repayment = Loan balance × (r(1+r)^n) / ((1+r)^n - 1)Where:
- r = benchmark interest rate
- n = remaining years of the loan
Our Division 7A Calculator does this automatically.
Critical deadline: 30 June
The minimum repayment must be made by 30 June each year. Not 28 days later. Not when you lodge your return. By 30 June.
If you miss the deadline:
- The full outstanding balance becomes a deemed dividend
- It’s added to your assessable income
- No franking credits apply
ATO focus on Division 7A
Division 7A is a key focus area for the ATO in 2025-26. They’re particularly watching:
- Loans without proper documentation
- Interposed entities used to circumvent Division 7A
- Arrangements designed to avoid minimum repayments
- Circular arrangements that manipulate loan balances
Common mistakes
1. No written agreement
Verbal agreements don’t count. The loan agreement must be in writing, ideally before the loan is made.
2. Interest rate too low
Charging less than the benchmark rate triggers Division 7A. The 8.37% rate is the minimum, not a suggestion.
3. Missing the 30 June deadline
Even being one day late can convert your entire loan to a deemed dividend. Set reminders well in advance.
4. Forgetting interposed entities
Division 7A applies to loans to shareholders and their associates. Loans to your family trust or spouse are caught.
5. Offsetting instead of repaying
You can’t simply offset the loan against amounts the company owes you. Actual repayments must be made.
What happens if you breach Division 7A
If the loan doesn’t comply:
| Scenario | Tax consequence |
|---|---|
| No agreement | Full loan = deemed dividend |
| Interest below benchmark | Interest shortfall = deemed dividend |
| Missed repayment | Repayment shortfall = deemed dividend |
| Loan not repaid by term end | Outstanding balance = deemed dividend |
Deemed dividends are taxed at your marginal rate (up to 47%) with no franking credits.
Planning strategies
Pay down loans before 30 June
If cash is tight, prioritise Division 7A repayments over discretionary spending. The tax consequences of missing the deadline are severe.
Consider declaring dividends
Paying a franked dividend to yourself, then using those funds to repay the loan, can be tax-effective. You get franking credits on the dividend.
Review loan terms annually
Each year:
- Confirm the current benchmark rate
- Recalculate minimum repayments
- Schedule payments before 30 June
- Document everything
Key takeaways
- 2025-26 rate: 8.37% (down from 8.77%)
- Deadline: Minimum repayment by 30 June — no exceptions
- Documentation: Written agreement with correct terms is essential
- ATO focus: Division 7A compliance is being actively monitored
- Consequences: Breaching Division 7A converts loans to taxable income
Don’t risk your loan becoming a deemed dividend. Use our Division 7A Calculator to check your minimum repayment.
Related tools: Division 7A Calculator.