Division 7A Minimum Yearly Repayment Formula (2025-26)
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Primary tax-year context: 2025-26
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A complying Division 7A loan agreement keeps a loan out of deemed-dividend territory — but only if the minimum yearly repayment (MYR) is actually made in full by 30 June each year. Understanding how the MYR is calculated, and the critical deadline that catches many taxpayers out, is essential before the end of each income year.
The MYR formula
The Division 7A minimum yearly repayment uses a standard loan amortisation formula:
MYR = Opening balance × [r × (1 + r)^n] / [(1 + r)^n − 1]Where:
- r = benchmark interest rate for the year (expressed as a decimal)
- n = remaining term of the loan (in years)
- Opening balance = loan balance at the start of the income year (after prior repayments)
For 2025-26, r = 8.37% (0.0837).
The result is the total amount — principal plus interest — that must be repaid during the income year. It is not an interest-only payment. Each annual repayment reduces the principal, so the MYR amount changes each year as the balance and remaining term both decline.
Unsecured vs secured: why the term matters
The loan term determines how quickly the loan must be paid down. A shorter term means higher annual repayments.
- Unsecured loan: maximum 7-year term
- Secured loan (registered mortgage over real property): maximum 25-year term
The same $100,000 loan carries very different MYR obligations depending on how it is structured:
| Loan amount | Term | Year 1 MYR (8.37%) |
|---|---|---|
| $50,000 | 7 yr (unsecured) | ~$9,779 |
| $100,000 | 7 yr (unsecured) | ~$19,558 |
| $200,000 | 7 yr (unsecured) | ~$39,115 |
| $500,000 | 7 yr (unsecured) | ~$97,788 |
| $50,000 | 25 yr (secured) | ~$4,637 |
| $100,000 | 25 yr (secured) | ~$9,274 |
| $200,000 | 25 yr (secured) | ~$18,548 |
| $500,000 | 25 yr (secured) | ~$46,370 |
These figures are approximations based on the 2025-26 benchmark rate. Use the Division 7A calculator for precise figures based on your actual opening balance and remaining term.
The deadline that catches people out
The MYR must be paid by 30 June — not by lodgment day, not by the extended due date of the company’s tax return.
This is one of the most common sources of Division 7A errors. Lodgment day can fall in October, and it is the deadline for the written agreement to be in place. But the repayment obligation runs to 30 June of the same income year. The two deadlines are different, and confusing them is expensive.
If the full MYR is not made by 30 June, the shortfall is treated as an unfranked deemed dividend assessed in the shareholder’s income year ending 30 June. There is no cure after year end.
What counts as a repayment
Not every repayment must be a cash bank transfer. The ATO accepts the following as qualifying repayments:
Cash payment The shareholder makes a direct payment to the company before 30 June. This is the simplest and cleanest form of repayment.
Dividend declaration with set-off If the company declares a dividend to the shareholder before 30 June, the dividend can be set off against the MYR obligation. If the dividend is franked, the shareholder receives franking credits — which partially offsets the tax cost compared to cash repayment from after-tax personal funds. This is often the most tax-efficient method when the company has sufficient distributable surplus and franking credits.
Set-off against amounts owed to the shareholder If the company owes the shareholder money (for example, unpaid wages or a genuine trade creditor balance), that amount can be applied against the MYR. The set-off must be documented and genuinely owed — it cannot be fabricated at year end.
Note that the set-off of an unfranked dividend against the MYR does not avoid the dividend income; the shareholder is still assessed on the dividend amount. The benefit is that the loan balance reduces without a cash flow requirement.
Common MYR calculation mistakes
Using last year’s benchmark rate The benchmark rate changes each year. For 2025-26 it is 8.37%. Always confirm the current year’s rate before calculating the MYR — using a stale rate understates the repayment obligation.
Calculating interest only The MYR formula produces a combined principal-and-interest amount. Some practitioners mistakenly calculate only the interest component (opening balance × r) and treat that as sufficient. It is not. The shortfall in principal reduction becomes a deemed dividend.
Paying after 30 June Paying the MYR on 1 July — even one day late — means the payment does not count for the prior income year. The shortfall crystallises as a deemed dividend on 30 June.
Wrong opening balance If prior-year repayments were not correctly applied, the opening balance for the current year will be wrong. This cascades through every subsequent year’s MYR calculation. Reconcile the loan account at the start of each year.
Treating the loan as fully repaid when it is not At the end of the loan term, any residual balance must be fully repaid. If a 7-year loan still has a balance after year 7, that balance becomes a deemed dividend. Run the amortisation schedule to its end date to confirm.
Practical steps for 2025-26
- Confirm the opening balance of each Division 7A loan as at 1 July 2025.
- Apply the 2025-26 benchmark rate of 8.37% to calculate the MYR for each loan.
- Set up a repayment before 30 June 2026 — calendar reminder in April is not too early.
- Determine the most tax-efficient repayment method (cash, franked dividend set-off, or trade creditor set-off).
- Document the repayment with bank statements or board minutes (for dividend set-off).
- Retain the loan schedule and working papers with the company’s records.
Use the Division 7A calculator to generate the full amortisation schedule and cross-check your figures.