5 Rules For Division 7A Loans

When Ben started in accounting, they had a couple of clients who had loans pre-1997, and they basically didn’t repay a cent because there were no requirements to abide by these sorts of rules.

But in general, the loans need to be documented. There’s a principal, and interest repayments required, a maximum term, and minimum repayments calculated per formula. 

The interest rate each year is advised by the ATO and currently, it’s at 4.52%. It’s usually a few percent higher than you can get a home loan rate from and it has gone down over. 

If the loan is unsecured, you have 7 years to pay. But if it is secured, you have 25 years to pay it back. And this is a little bit of a hint on one of our medium to long-term solutions for Division 7A loans. 

It also applies to distributions from trusts. So, if you’ve made the hundred thousand dollars in a trust and you pay a portion to a bucket company and you distribute, you have to pay the cash to the bucket company. Otherwise, you create a Division 7A loan. It is not necessarily the worst thing in the world but we’ve just got to manage it.

Need to speak to an accountant? Book a ZERO cost 20 minute strategy call with an Inspire Accountant