Division 7A complying loan agreement preparation checklist
Division 7A turns unpaid loans and UPEs from private companies to shareholders or associates into deemed unfranked dividends. A written complying loan agreement prevents the deemed dividend. This checklist is for Australian tax advisers drafting or reviewing Division 7A agreements before lodgment day.
This is a 12-step checklist for preparing a Division 7A complying loan agreement under section 109N of the Income Tax Assessment Act 1936 — covering written loan, maximum term, benchmark interest rate, and minimum yearly repayment.
The checklist
Identify the Division 7A trigger
Confirm the payment, loan, forgiven debt, or UPE and the shareholder or associate involved.
Check distributable surplus of the company
Calculate the distributable surplus under section 109Y — Division 7A is capped at this amount.
Choose loan term (7 or 25 years)
Select a 7-year unsecured loan or a 25-year loan secured over real property with 110% LVR.
Set the interest rate at the benchmark
Use the benchmark interest rate published by the ATO for the income year the loan is made.
Draft the written loan agreement
Prepare a written agreement signed before the company’s lodgment day for the year the loan is made.
Secure 25-year loans with registered mortgage
For 25-year loans, register a first mortgage over real property with market value at least 110% of the loan.
Calculate minimum yearly repayment
Apply the statutory formula in section 109E(6) — principal and interest minimum each year.
Plan the MYR funding source
Identify how the borrower will fund MYR — salary, dividends, or refinance — and document the plan.
Address pre-16 December 2009 UPE conversions
If the loan refinances a UPE, confirm the UPE treatment under PCG 2017/13 or the new section 109CB framework.
Diarise the MYR by 30 June each year
Set reminders to ensure the MYR is paid before 30 June every year of the loan term.
Record the loan in the company minutes
Prepare company resolutions authorising the loan and the security.
Update the loan register and accounts
Record the loan in the company loan register and reconcile annually in the financial statements.
When this checklist applies
Use whenever a private company makes a loan or payment to a shareholder or associate, or converts a UPE, before the company’s lodgment day.
Common pitfalls
- Missing the lodgment day deadline — the loan becomes an unfranked dividend
- Using the wrong benchmark rate — use the rate for the year the loan is made
- Taking a 25-year loan without registering the mortgage and meeting 110% LVR
- Missing an annual MYR by 30 June — shortfall taxed as a dividend
- Forgetting UPEs are subject to new section 109CB framework from 1 July 2022
Run this checklist on a real matter
Quillio drafts Division 7A loan agreements, calculates MYR for each year, and flags the benchmark rate changes on a live matter. See /practice-areas/commercial-lawyers or start a free trial.
General guidance only — this is not tax advice. Advice from a registered tax agent is required before executing any Division 7A agreement.
Use this checklist on your matter.
Quillio can run this checklist on a specific NSW conveyancing matter — confirm each item, calculate adjustments, and generate the supporting documents. The free trial requires no credit card.
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