Shareholder Loan Agreement — Division 7A (Australia)
SHAREHOLDER LOAN AGREEMENT
Division 7A Complying Loan Agreement under the Income Tax Assessment Act 1936 (Cth)
This Shareholder Loan Agreement (the “Agreement”) is entered into on [Agreement Date] by and between:
[Lender Company Name] (ACN [Lender ACN]) (ABN [Lender ABN]), a private company incorporated under the Corporations Act 2001 (Cth), with its registered office at [Lender Address], [Lender City] [Lender State] [Lender Postcode], Australia (the “Company” or “Lender”); and
[Borrower Name], of [Borrower Address], [Borrower City] [Borrower State] [Borrower Postcode], Australia, being [Borrower Relationship] (the “Borrower”).
BACKGROUND
A. The Company wishes to lend, and the Borrower wishes to borrow, the sum of A$[Loan Amount] (the “Principal”) on the terms and conditions set out in this Agreement.
B. The Parties intend this Agreement to constitute a complying loan agreement for the purposes of Division 7A of the Income Tax Assessment Act 1936 (Cth) (the “ITAA 1936”), so that the loan will not be treated as a deemed dividend under section 109D of the ITAA 1936.
C. The Parties acknowledge that this Agreement must be entered into before the lodgement date of the Company’s income tax return for the income year in which the loan is made, in order to satisfy the requirements of section 109N of the ITAA 1936.
NOW IT IS AGREED as follows:
1. DEFINITIONS AND INTERPRETATION
1.1 In this Agreement, unless the context otherwise requires:
- “ATO” means the Australian Taxation Office.
- “Benchmark Interest Rate” means the Division 7A benchmark interest rate published by the ATO for each year of income, being the Reserve Bank of Australia Indicator Lending Rate for standard variable housing loans as determined under the ITAA 1936.
- “Division 7A” means Division 7A of Part III of the Income Tax Assessment Act 1936 (Cth).
- “Income Year” has the meaning given in section 995-1 of the Income Tax Assessment Act 1997 (Cth) and means the 12-month period ending on 30 June each year.
- “ITAA 1936” means the Income Tax Assessment Act 1936 (Cth).
- “Loan” means the principal amount of A$[Loan Amount] advanced or to be advanced by the Company to the Borrower under this Agreement.
- “Loan Term” means [Loan Term] years from the date of this Agreement.
- “Minimum Yearly Repayment” or “MYR” means the minimum yearly repayment calculated in accordance with section 109E(6) of the ITAA 1936 for each relevant income year.
- “Maturity Date” means the date that is [Loan Term] years from [Drawdown Date].
1.2 This Agreement is intended to be a “complying loan agreement” within the meaning of section 109N of the ITAA 1936. The Parties must not take any action, or fail to take any action, that would cause the Loan to cease to be a complying loan for Division 7A purposes.
2. THE LOAN
2.1 Subject to the terms of this Agreement, the Company agrees to lend to the Borrower, and the Borrower agrees to borrow from the Company, the sum of A$[Loan Amount] (the “Loan”).
2.2 The Loan will be advanced to the Borrower on [Drawdown Date] (the “Drawdown Date”) by electronic funds transfer to the Borrower’s nominated bank account, or as otherwise agreed in writing by the Parties.
2.3 The purpose of the Loan is [Loan Purpose]. The Borrower must use the Loan funds for this purpose only, unless the Company consents in writing to a different use.
2.4 The Loan is made on an [Loan Security] basis.
3. INTEREST — DIVISION 7A BENCHMARK RATE
3.1 The Borrower must pay interest on the outstanding principal balance of the Loan at the rate of [Interest Rate]% per annum (the “Initial Interest Rate”).
3.2 For each income year after the income year in which this Agreement is entered into, the interest rate must equal or exceed the Division 7A benchmark interest rate published by the ATO for that income year, in accordance with section 109N(1)(a) of the ITAA 1936. If the benchmark interest rate for any subsequent income year exceeds the rate then payable under this Agreement, the interest rate shall automatically increase to equal the benchmark rate for that year from 1 July of that year.
3.3 Interest shall be calculated [Interest Calculation Method] and shall be payable as part of the Minimum Yearly Repayment described in clause 4.
3.4 The Parties acknowledge that the benchmark interest rate is set annually by the ATO and published at ato.gov.au/tax-rates-and-codes/division-7a-benchmark-interest-rate before the commencement of each income year. The Company and the Borrower should each verify the current benchmark rate each year with their respective registered tax agents or solicitors.
4. REPAYMENT — MINIMUM YEARLY REPAYMENT
4.1 The Borrower must repay the Loan in instalments [Repayment Frequency], with the first repayment due on [First Repayment Date].
4.2 In each income year in which the Loan is outstanding, the Borrower must pay to the Company at least the Minimum Yearly Repayment (MYR) calculated in accordance with section 109E(6) of the ITAA 1936. The MYR is the amount calculated using the formula:
MYR = [P × i × (1 + i)^n] / [(1 + i)^n − 1]
where P is the opening balance of the Loan for the income year, i is the benchmark interest rate for the income year, and n is the number of income years remaining in the Loan Term.
4.3 The Borrower acknowledges that the precise MYR for each income year must be calculated by a registered tax agent or solicitor based on the outstanding principal balance and the benchmark interest rate applicable for that income year. Failure to make the MYR by the end of the income year (30 June) will result in the shortfall being treated as an unfranked deemed dividend in the Company’s hands under section 109E of the ITAA 1936.
4.4 The outstanding principal balance of the Loan, together with all accrued and unpaid interest, shall be repaid in full on or before the Maturity Date.
4.5 The Borrower may make additional repayments of principal at any time without penalty. Early repayments reduce the outstanding balance and accordingly reduce the MYR obligations in subsequent income years.
5. DIVISION 7A COMPLIANCE OBLIGATIONS
5.1 The Parties acknowledge that this Agreement is intended to satisfy the requirements of a “complying loan agreement” under section 109N of the ITAA 1936, so that the Loan will not be treated as a deemed unfranked dividend under section 109D.
5.2 To maintain Division 7A compliance, the Parties must ensure that:
- this Agreement is entered into before the lodgement date of the Company’s income tax return for the income year in which the Loan is made (section 109N(3) of the ITAA 1936);
- the interest rate on the Loan for each income year equals or exceeds the ATO’s Division 7A benchmark interest rate for that year (section 109N(1)(a));
- the term of the Loan does not exceed [Loan Term] years from the date of this Agreement, being the maximum term permitted under section 109N(1)(b) for an [Loan Security] loan;
- the Borrower makes the Minimum Yearly Repayment in each income year in which the Loan is outstanding (section 109E);
- all repayments are actual payments of principal and interest and are not themselves new loans or advances from the Company back to the Borrower.
5.3 The Parties acknowledge that if the Loan ceases to be a complying loan agreement (for example, by failing to make the MYR in any income year, or by exceeding the maximum loan term), the outstanding balance may be treated as an unfranked deemed dividend in the hands of the Borrower in the income year in which the compliance failure occurs.
5.4 Each Party agrees to cooperate with the other to ensure ongoing Division 7A compliance, including by providing any information reasonably requested by the other Party’s registered tax agent or solicitor.
6. GENERAL PROVISIONS
6.1 Tax Advice. The Parties acknowledge that this Agreement has significant taxation implications under Division 7A of the ITAA 1936, and each Party should obtain independent tax advice from a registered tax agent or solicitor. Nothing in this Agreement constitutes tax advice.
6.2 Entire Agreement. This Agreement constitutes the entire agreement between the Parties with respect to the Loan and supersedes all prior oral and written arrangements between the Parties relating to the same subject matter.
6.3 Amendments. No amendment to this Agreement is effective unless made in writing and signed by authorised representatives of each Party. Any amendment that would affect the Division 7A complying status of the Loan should be made on the advice of a registered tax agent or solicitor.
6.4 Assignment. The Borrower must not assign or transfer the Borrower’s rights or obligations under this Agreement without the prior written consent of the Company.
6.5 Severability. If any provision of this Agreement is held to be void, voidable, illegal, or unenforceable, that provision is severed without affecting the remaining provisions.
6.6 Governing Law. This Agreement is governed by the law of [Governing Law], and the Parties submit to the non-exclusive jurisdiction of the courts of [Governing Law]. The tax law provisions of this Agreement are governed by the ITAA 1936, a Commonwealth statute.
6.7 Records. The Company must retain a copy of this Agreement with its financial and tax records for a minimum of 5 years from the date the Loan is fully repaid, in accordance with the ATO’s record-keeping requirements.
EXECUTED as an agreement.
SIGNED for and on behalf of the COMPANY (LENDER)
[Lender Company Name] (ACN [Lender ACN])
Signature of Director/Secretary: _______________________________
Full name: _______________
Date: _______________
SIGNED by the BORROWER
Name: [Borrower Name]
Address: [Borrower Address], [Borrower City] [Borrower State] [Borrower Postcode]
Signature: _______________________________
Date: _______________
IMPORTANT NOTICE — DIVISION 7A TAX OBLIGATIONS
This Agreement must be entered into before the lodgement date of the Company’s income tax return for the income year in which the loan is made. The Borrower must make the Minimum Yearly Repayment (MYR) in each income year to avoid a deemed dividend. The ATO’s Division 7A calculator is available at ato.gov.au. Both parties should obtain annual advice from a registered tax agent or solicitor regarding the MYR and the applicable benchmark interest rate.
Company (Lender)
________________
Signature
Date: ________________
Borrower
________________
Signature
Date: ________________
What Is a Shareholder Loan Agreement — Division 7A (Australia)?
A Shareholder Loan Agreement in Australia records the amount advanced, the repayment schedule, interest, and the lender's remedies on default between lender and borrower under the National Consumer Credit Protection Act 2009 (Cth).
Division 7A was introduced in 1997 to prevent private company shareholders from accessing company profits tax-free through informal loans, payments, or debt forgiveness arrangements, rather than through the formal dividend payment process which is subject to tax. Without Division 7A, a shareholder could borrow money from their company — effectively accessing retained profits — without paying any tax on those funds, either immediately or in future years.
Under section 109D of the ITAA 1936, if a private company makes a loan to a shareholder or an associate of a shareholder in an income year, and that loan is not put on a complying loan agreement before the lodgement date of the company's tax return for that year, the entire outstanding loan balance is treated as an unfranked dividend paid to the shareholder. That deemed dividend is included in the shareholder's assessable income at their full marginal tax rate, with no franking credit offset.
A Division 7A complying loan agreement avoids this outcome by establishing a formal loan on commercial terms: with an interest rate at or above the ATO's annual benchmark rate (set under section 109N of the ITAA 1936 by reference to the Reserve Bank of Australia's standard variable housing loan rate), a maximum loan term of 7 years (unsecured) or 25 years (secured by a registered mortgage over real property with at least 110% security coverage), and a minimum yearly repayment of principal and interest calculated using the formula in section 109E(6) of the ITAA 1936.
The legal framework governing the Shareholder Loan Agreement — Division 7A (Australia) in Australia draws on several key statutes and regulatory bodies. Under the Corporations Act 2001 (Cth) and the Australian Securities and Investments Commission Act 1989, ASIC regulates financial products and services. The National Consumer Credit Protection Act 2009 (Cth) governs consumer lending. The Australian Taxation Office (ATO) applies stamp duty through state revenue offices. The Australian Financial Complaints Authority (AFCA) resolves consumer financial disputes. The Reserve Bank of Australia (RBA) sets monetary policy affecting interest rate obligations in financial agreements. Parties executing a Shareholder Loan Agreement — Division 7A (Australia) in Australia should confirm the document reflects current law, including any amendments enacted since the original drafting date. The National Consumer Credit Protection Act 2009 (Cth) sets the foundational requirements.
When Do You Need a Shareholder Loan Agreement — Division 7A (Australia)?
A Division 7A complying loan agreement is needed whenever a private company in Australia lends money to, or allows an amount to remain outstanding for, a shareholder or an associate of a shareholder. Common situations where Division 7A applies include:
Direct shareholder loans — when a private company directly lends funds to a shareholder, for example to help the shareholder purchase an investment property, fund personal expenses, or provide working capital for the shareholder's other business interests.
Unpaid present entitlements (UPEs) — when a company trustee or beneficiary has an unpaid present entitlement from a trust that flows to a private company, and that entitlement is left in the trust and used as a loan. The ATO's Taxation Ruling TR 2010/3 treats certain UPEs left with a trust as loans for Division 7A purposes.
Loans to associates — when a company lends to an associate of a shareholder as defined in section 318 of the ITAA 1936. Associates include spouses, children, parents, siblings, and related entities such as trusts and companies in which the shareholder has an interest.
Pre-existing informal loans — when a company has already advanced funds to a shareholder on an informal basis (without a written agreement), and the parties wish to formalise the arrangement before the company's tax return lodgement date to avoid a deemed dividend.
The agreement must be entered into before the lodgement date of the company's income tax return for the income year in which the loan is made. This is a strict statutory requirement under section 109N(3) of the ITAA 1936, and missing this deadline means the full loan amount will be treated as a deemed unfranked dividend regardless of how commercially the loan has otherwise been documented.
Parties in Australia should prepare a Shareholder Loan Agreement — Division 7A (Australia) proactively rather than waiting for a dispute to arise. Courts interpret agreements based on the written terms rather than oral representations. Under the Corporations Act 2001 (Cth) and the Australian Securities and Investments Commission Act 1989, ASIC regulates financial products and services. The National Consumer Credit Protection Act 2009 (Cth) governs consumer lending. The Australian Taxation Office (ATO) applies stamp duty through state revenue offices. The Australian Financial Complaints Authority (AFCA) resolves consumer financial disputes. The Reserve Bank of Australia (RBA) sets monetary policy affecting interest rate obligations in financial agreements. Where the transaction involves regulated activities, prior approval from the relevant authority may be required before execution.
What to Include in Your Shareholder Loan Agreement — Division 7A (Australia)
A Division 7A complying loan agreement under section 109N of the ITAA 1936 must contain several essential elements to avoid the loan being treated as a deemed dividend by the ATO.
Party identification — The agreement must clearly identify the private company as lender and the shareholder (or associate) as borrower, including their ACN and ABN where applicable. The borrower's relationship to the company (as shareholder or associate under section 318 of the ITAA 1936) should be stated.
Loan amount and drawdown — The principal amount of the loan must be specified in Australian dollars. The date on which the funds are or will be advanced should be recorded, as this determines the income year to which Division 7A first applies.
Interest rate at or above the benchmark — The agreement must specify that interest is payable at or above the ATO's Division 7A benchmark interest rate for each income year. The benchmark rate is published annually by the ATO and is based on the RBA's standard variable housing loan rate. The agreement should also address what happens when the benchmark rate changes year-to-year.
Maximum loan term — The term must not exceed 7 years for an unsecured loan, or 25 years for a loan secured by a registered first mortgage over real property where the security value is at least 110% of the loan amount at the time the loan is made. Both limits are set by section 109N(1)(b) of the ITAA 1936.
Minimum yearly repayment obligation — The agreement must require the borrower to make at least the minimum yearly repayment (MYR) calculated under the section 109E(6) formula in each income year. Failure to make the MYR results in the shortfall being treated as a deemed dividend.
Division 7A compliance acknowledgment — Both parties should acknowledge their understanding of the tax consequences of the arrangement and their obligations to maintain ongoing compliance, including the obligation to enter into the agreement before the company's tax return lodgement date.
Additional compliance elements for a Shareholder Loan Agreement — Division 7A (Australia) used in Australia include: Under the Corporations Act 2001 (Cth) and the Australian Securities and Investments Commission Act 1989, ASIC regulates financial products and services. The National Consumer Credit Protection Act 2009 (Cth) governs consumer lending. The Australian Taxation Office (ATO) applies stamp duty through state revenue offices. The Australian Financial Complaints Authority (AFCA) resolves consumer financial disputes. The Reserve Bank of Australia (RBA) sets monetary policy affecting interest rate obligations in financial agreements. Forms-legal.com provides this template as a starting point for Australia-compliant documentation.
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Reference this free template in an article, syllabus, or research note:
Forms Legal. (2026). Shareholder Loan Agreement — Division 7A (Australia) (Australia) [Legal document template]. Forms Legal. https://forms-legal.com/australia/financial/loans/shareholder-loan-agreement-australia
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year = {2026},
howpublished = {\url{https://forms-legal.com/australia/financial/loans/shareholder-loan-agreement-australia}},
note = {Free legal document template. Based on National Consumer Credit Protection Act 2009 (Cth)}
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Frequently Asked Questions
Division 7A is a set of anti-avoidance rules in Division 7A of Part III of the Income Tax Assessment Act 1936 (Cth) (ITAA 1936). It is designed to prevent private company shareholders (and their associates) from accessing company profits tax-free through loans, payments, or debt forgiveness rather than dividends. Under section 109D of the ITAA 1936, if a private company makes a loan to a shareholder or an associate of a shareholder, and that loan is not put on a complying loan agreement before the lodgement date of the company's income tax return for the income year, the entire loan amount is treated as an unfranked deemed dividend paid to the shareholder. This means the shareholder is taxed on the full loan amount at their marginal tax rate, with no franking credit offset. By putting the loan on a Division 7A complying loan agreement — with the correct interest rate, maximum term, and annual minimum repayments — the loan is not treated as a dividend and the shareholder repays it commercially over time.
Under section 109N(1)(a) of the ITAA 1936, the interest rate on a Division 7A complying loan must equal or exceed the ATO's benchmark interest rate for each income year after the year in which the loan is made. The benchmark interest rate is set annually by the ATO and is based on the Reserve Bank of Australia's Indicator Lending Rate for standard variable housing loans, published before the start of each income year (1 July). For example, the benchmark rate for the 2023-24 income year was 8.27% per annum. The ATO publishes the benchmark rate on its website at ato.gov.au/tax-rates-and-codes/division-7a-benchmark-interest-rate. If the benchmark rate increases in a subsequent income year, the loan must carry at least that higher rate for that year. Importantly, the interest must actually be paid — it cannot simply be capitalised onto the loan principal.
Section 109N(1)(b) of the ITAA 1936 sets the maximum loan term for a Division 7A complying loan as follows. For an unsecured loan, the maximum term is 7 years. For a loan that is secured by a registered first mortgage over real property, the maximum term is 25 years — but only if, when the loan is first made, the market value of the security property (less the outstanding balances of any loans that take priority over the Division 7A loan) is at least 110% of the Division 7A loan amount. The 110% security coverage test must be satisfied at the time the loan is made, not at a later date. If the required security is subsequently lost (for example, because the property value falls below the threshold), the loan does not automatically lose its 25-year term, but care should be taken to maintain the security.
The Minimum Yearly Repayment (MYR) is the minimum amount of principal and interest that the borrower must pay to the lending company in each income year (ending 30 June) in which a Division 7A loan is outstanding. The MYR is calculated using the formula in section 109E(6) of the ITAA 1936: MYR = [P × i × (1+i)^n] / [(1+i)^n − 1], where P is the opening balance of the loan for the income year, i is the benchmark interest rate for that year, and n is the number of income years remaining in the loan term. If the borrower fails to make the full MYR by 30 June of an income year, the shortfall (the amount by which the MYR exceeds the actual repayment) is treated as an unfranked deemed dividend under section 109E of the ITAA 1936. This deemed dividend is included in the shareholder's assessable income for that year and taxed at their marginal rate — without any franking credit offset. The ATO provides a free Division 7A calculator at ato.gov.au to assist taxpayers and their advisers with calculating the MYR each year.
Under section 109N(3) of the ITAA 1936, a Division 7A complying loan agreement must be entered into before the lodgement date of the company's income tax return for the income year in which the loan is made. For most private companies whose income year ends on 30 June, the lodgement date for the company tax return is typically 15 May of the following calendar year (or a later date if the return is lodged through a registered tax agent). This means that if a private company makes a loan to a shareholder in the 2024-25 income year (i.e., between 1 July 2024 and 30 June 2025), the parties must enter into the complying loan agreement before the company's 2024-25 return is lodged — which is typically by 15 May 2026 for tax agent clients. Critically, the agreement should be signed and back-dated to the date the loan was actually made, or signed as soon as possible after the loan is advanced. Waiting until close to the lodgement deadline is risky. Both parties should obtain advice from a registered tax agent or solicitor well before the deadline.
This template is provided for informational purposes only and does not constitute legal advice. Laws vary by jurisdiction and change over time. Consult a qualified attorney for advice specific to your situation.Full disclaimer
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