Borrowed money from your own company? Division 7A and your next loan

When you own the company, it’s easy to treat its bank account as yours. The company pays your mortgage one month because your personal account is short. You transfer $10,000 out for a family expense and mean to put it back. The company pays for a car that the family mostly uses. None of it feels like a big deal at the time. But in tax law and in a lender’s eyes, the company is a separate entity — and money moving from it to you needs to be properly characterised.

This page is a plain-English explanation of why that matters when you want to borrow. It isn’t tax advice; your accountant is the person to fix it.

What is Division 7A, in plain terms?

Division 7A is part of Australia’s tax law aimed at private companies. The ATO explains that “A payment or other benefit provided by a private company to a shareholder or their associate can be treated as a dividend for income tax purposes under Division 7A even if the participants treat it as some other form of transaction.”

In other words: if the company gives you money, lends you money, forgives a debt you owe it, or lets you use its assets, the ATO may treat that as a dividend — and typically an unfranked one.

The ATO also sets out the way out: an amount “isn’t treated as a dividend if it’s repaid or converted into a Division 7A complying loan by the company’s lodgment day”. A complying loan has a written agreement and minimum yearly repayments; your accountant handles the details.

Why do lenders care?

Because it tells them money has left the business. When a lender reviews a small company’s financial statements, a large “loan to director” or “amount owed by shareholder” stands out.

What the lender sees	What it may ask
A big amount owed by the director to the company	“Is this a real asset, or money that won’t come back?”
Company paying personal expenses	“Is the business carrying personal costs we need to strip out?”
No loan agreement on record	“Is there a tax issue that could hit the company’s cash?”
A complying loan with regular repayments	Usually fine — it’s documented and understood

A lender assessing whether the company can repay a new loan will often discount money owed by the director, because it’s not cash the business can use. It may also want to know that a tax surprise isn’t waiting around the corner.

How is this different from lending money to your company?

It’s the opposite direction. When you put money into your company, the company owes you — see lending money to your company. Division 7A is about money coming out of the company to you or your associates. Many owners have both at different times, which is why an accountant’s reconciliation is so valuable.

How do you tidy it up before borrowing?

Only your accountant can advise on the right fix for your situation, but the conversation usually covers:

1. Finding every amount the company has paid for you or your family that wasn’t wages, fees or a declared dividend.
2. Deciding the treatment — repay, put on a complying loan agreement, or declare a dividend.
3. Stopping new leakage by paying yourself properly. Our guide on paying yourself as a director explains the common approaches.
4. Getting the paperwork in place before the company’s lodgment day.

Once that’s sorted, the company’s statements tell a much cleaner story. When you’re ready, start a company enquiry and mention that the director loan position has been reviewed — it saves a round of questions.

Can a business loan fix a Division 7A problem?

Be careful here. A business loan must be for a genuine business purpose. What you personally owe your company is a personal obligation, and repaying it is not a business purpose for the company. We only arrange business-purpose finance, so we won’t structure a loan to fund your personal repayment to your own company. Your accountant can suggest the right approach — for example, a complying loan agreement with manageable yearly repayments from your personal income.

What a business loan can do is fund the company’s genuine business needs, so the company isn’t tempted to lean on the director — or the director on the company — in a tight month.

Illustrative example: A solo director’s company paid about $30,000 of family expenses over a year, recorded as “drawings” in the books. His accountant identifies it as a Division 7A issue and puts a complying loan agreement in place before lodgment. The following quarter, the company applies for a $90,000 business loan to fund new equipment. With the loan agreement documented and repayments running, the lender understands the position and focuses on the company’s trading.

How do you avoid it happening again?

Set up a simple routine: the company pays you a regular amount as wages or director’s fees, dividends are declared deliberately, and personal bills are paid from your personal account. If the company does need to lend you money, do it with a written agreement from the start. The money-mixing check is a quick way to see whether any habits are creeping back.

Clean company, clear conversation

We see director loan accounts in every state of repair, and we don’t judge. Starting an enquiry takes about 60 seconds, there’s no credit check at that stage, and your details go to one specialist rather than a crowd of lenders. They’ll call to understand the company and what it needs. Be upfront on the form about any director loans — accurate answers help us find a lender that’s comfortable with your position first time.

Talk to a specialist about your company →