Division 7A Lodgment Day Checklist (2025-26)
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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.
Division 7A compliance fails most often on documentation and timing — not on the underlying numbers. The penalties for missing a deadline or a required clause are severe: the entire loan can be reclassified as an unfranked dividend, assessed at the shareholder’s marginal rate with no franking credit offset.
Use this checklist before the company’s lodgment day for each income year.
Understanding the two key deadlines
Before running through the checklist, it helps to be clear on which deadline applies to which obligation:
| Obligation | Deadline |
|---|---|
| Written loan agreement must be executed | Before company lodgment day |
| Minimum yearly repayment (MYR) must be made | By 30 June of the income year |
These are different dates. The agreement deadline is lodgment day (often October or later for agents). The repayment deadline is always 30 June — it cannot be extended. Confusing the two is one of the most common Division 7A errors.
Checklist: written agreement
1. Is a written loan agreement in place for every Division 7A loan?
A complying agreement must be in writing and signed by both parties. Verbal agreements do not qualify. Check that an agreement exists for:
- direct loans to shareholders
- loans to associates of shareholders (spouses, related trusts, related companies)
- payments made on behalf of a shareholder that were not repaid during the year
2. Was the agreement executed before lodgment day for the relevant income year?
The agreement must exist before the company lodges its tax return for the year in which the loan arose. An agreement prepared at tax time but dated after lodgment day does not save the loan. Confirm the execution date and the lodgment date for each loan year.
3. Does the agreement include all required terms?
Run through each required element:
- Principal amount clearly stated
- Benchmark interest rate (minimum 8.37% for 2025-26) or reference to the ATO benchmark rate
- Loan term specified (maximum 7 years unsecured; maximum 25 years secured)
- Minimum yearly repayment obligation stated
- Borrower and lender details correct
4. For 25-year loans: is the security properly documented?
A 25-year term requires a registered mortgage over real property. Confirm:
- Mortgage is registered (not just in draft or unregistered form)
- The secured property is real property (not equipment, shares, or a personal guarantee)
- Loan-to-value ratio was adequate when security was taken
If the security does not meet this standard, the maximum term is 7 years — and any MYR calculated on a 25-year schedule will be understated, creating a shortfall deemed dividend each year.
Checklist: minimum yearly repayment (2025-26)
5. Has the MYR been made by 30 June 2026?
The MYR must be a cash payment, franked dividend set-off, or set-off against genuine amounts owed to the shareholder. Confirm:
- Repayment method determined (cash / dividend set-off / trade creditor set-off)
- Payment made or set-off documented before 30 June
- Bank statement or board minutes obtained as evidence
6. Is the MYR calculated correctly for 2025-26?
- Benchmark rate used: 8.37%
- Opening balance confirmed (prior repayments correctly applied)
- Remaining term confirmed
- MYR formula applied (not interest-only)
- Cross-checked using the Division 7A calculator
Checklist: new loans and payments during the year
7. Were any new loans, advances, or payments made to shareholders during 2025-26?
Review the shareholder loan account and company bank records for:
- Direct cash loans or transfers to shareholders
- Company payments of personal expenses on the shareholder’s behalf (e.g., personal credit card, home costs, school fees, travel)
- Drawings that were not repaid during the income year
Each new loan or payment that was not repaid by year end may require a complying agreement to be in place before lodgment day.
8. Were any loans forgiven during the year?
A forgiven Division 7A loan is treated as an unfranked deemed dividend in the year of forgiveness. If any loan was formally or informally forgiven, the amount will need to be included in the shareholder’s assessable income for that year.
Checklist: financial statements and records
9. Do the company’s financial statements correctly show all loan balances?
- Shareholder loan account balances reconcile to loan agreements
- Interest accruals are correctly recorded at the benchmark rate
- Repayments reduce the principal balance, not just recorded as income to the company
10. Has the distributable surplus been checked?
A deemed dividend under Division 7A cannot exceed the company’s distributable surplus — broadly, the company’s net assets minus paid-up share capital. If the company has a low or nil distributable surplus, the deemed dividend may be reduced. This is worth calculating before lodgment, particularly for companies that have paid significant dividends or made losses.
What happens if you find a problem before lodgment
If a checklist item fails — a missing agreement, a short repayment, an unrecorded loan — the options narrow significantly once the tax return is lodged. Before lodgment:
- A missing agreement may still be executed if lodgment day has not passed.
- A repayment shortfall from 30 June cannot be remedied retroactively, but you can plan to manage the deemed dividend in the return.
- The ATO has a self-correction mechanism for certain Division 7A breaches under PCG 2017/13 — discuss with your tax agent whether it applies.
Act early. Division 7A problems discovered at the filing stage, or after, are almost always more expensive than those caught during the year.
Fast workflow for practitioners
- Pull all shareholder loan account balances for the income year.
- Cross-check each balance against executed loan agreements.
- Confirm MYR payments were made by 30 June using the Division 7A calculator.
- Review year’s transactions for new loans or payments that may require agreements.
- Reconcile with the company’s financial statements before lodging.