If you have a private company and money has been lent to a shareholder, director or associate, the Division 7A benchmark interest rate should be on your radar.
For the 2026–27 income year, the Division 7A benchmark interest rate is 8.77% per annum, up from 8.37% in 2025–26. The rate applies from 1 July 2026 and is relevant when calculating the minimum yearly repayment on complying Division 7A loans, as well as setting the interest rate on new complying loans.
That 0.40 percentage-point increase might not sound dramatic.
But when you have a six-figure shareholder loan sitting on the balance sheet, it can materially affect the amount that needs to be paid back each year.
And for clients using company and trust structures, there is another important development to understand: the High Court’s June 2026 decision in Commissioner of Taxation v Bendel [2026] HCA 18 has changed the landscape around unpaid present entitlements (UPEs) between trusts and corporate beneficiaries.
So, what does the 8.77% rate actually mean for you?
What is the Division 7A benchmark interest rate?
Division 7A is an integrity measure in Australia’s tax law designed to prevent private companies from effectively distributing profits to shareholders or their associates tax-free through payments, loans or debt forgiveness.
In simple terms, if your company has money and you take that money personally without treating the transaction properly, Division 7A can potentially treat the amount as an unfranked deemed dividend.
That can create a significant personal tax liability.
A shareholder loan is one of the most common areas where Division 7A becomes relevant.
For example, imagine your company has $300,000 sitting in its bank account.
You use $100,000 of that money personally to fund a property deposit, investment, renovation or other private expense.
If the $100,000 is genuinely a loan and the Division 7A requirements are satisfied, it can potentially remain a loan rather than being immediately treated as a dividend.
But there are rules.
One of those rules relates to the interest rate.
For the 2026–27 income year, that benchmark is 8.77%.
Why has the rate increased to 8.77%?
The Division 7A benchmark rate is linked to an RBA housing lending rate rather than being arbitrarily chosen each year by your accountant.
The ATO’s benchmark is based on the relevant RBA indicator lending rate for variable housing loans, with the applicable rate determined for the income year. The ATO updates its Division 7A benchmark annually.
The recent history illustrates how quickly the cost of a complying shareholder loan can change:
| Income year | Division 7A benchmark rate |
| 2022–23 | 4.77% |
| 2023–24 | 8.27% |
| 2024–25 | 8.77% |
| 2025–26 | 8.37% |
| 2026–27 | 8.77% |
The important point is that 8.77% is the current rate for 2026–27.
It does not mean every historical Division 7A loan suddenly becomes an 8.77% loan permanently. The benchmark is considered each income year for the purposes of the applicable interest and minimum yearly repayment calculations.
What does 8.77% mean for an existing shareholder loan?
This is where things become practical.
Suppose a shareholder has an existing $100,000 Division 7A loan with seven years remaining.
The minimum yearly repayment is calculated using the benchmark interest rate applicable to the relevant income year and the remaining term of the loan.
At 8.77%, a simple seven-year, $100,000 example produces a minimum yearly repayment of approximately $19,716, assuming the relevant balance and term are as described.
That repayment isn’t simply “8.77% interest”.
It generally incorporates both:
- the interest component; and
- the principal component required to amortise the loan over its remaining term.
The ATO’s Division 7A calculator uses the loan balance, applicable benchmark rate and remaining term to calculate the minimum yearly repayment.
This is why a change in the benchmark rate can matter even when the shareholder hasn’t borrowed another dollar.
The loan balance may be the same.
The shareholder may have made exactly the same repayments as the previous year.
But the minimum yearly repayment for the new income year can still change.
What happens if the minimum yearly repayment isn’t made?
This is one of the biggest Division 7A traps.
A complying Division 7A loan isn’t simply compliant because there is a loan agreement sitting in the company’s records.
The borrower generally needs to make the required minimum yearly repayment (MYR) for each income year.
If the required repayment isn’t made, there can be a Division 7A deemed dividend consequence for the shortfall, subject to the detailed operation of the legislation.
And importantly, the shareholder can’t simply borrow more money from the company to make the repayment.
The ATO specifically notes that a shareholder cannot borrow money from the company to make their Division 7A minimum yearly repayment.
This is why Division 7A planning needs to happen before year-end rather than after the accounts have already been prepared.
What makes a Division 7A loan “complying”?
For a typical shareholder loan to be put on complying Division 7A terms, several conditions need to be considered.
1. There must be a written agreement
A written agreement needs to be in place by the company’s lodgment day for the income year in which the loan was made.
The agreement should identify the parties and set out the essential terms, including the loan amount, term, repayment requirements and interest rate. It should also be signed and dated by the parties.
This is an area where informal bookkeeping can create problems.
A shareholder loan account appearing in Xero, MYOB or the company’s general ledger isn’t necessarily a substitute for properly documenting the underlying Division 7A arrangement.
2. The interest rate must meet the benchmark
The interest rate for each year of the loan must be at least the applicable Division 7A benchmark interest rate.
For 2026–27, that rate is 8.77%.
This means an existing loan does not simply get forgotten after the original agreement is signed.
The applicable benchmark needs to be considered each year.
3. The loan term is limited
For a standard unsecured Division 7A loan, the maximum term is generally seven years.
A loan secured by a registered mortgage over real property can potentially have a maximum term of 25 years, but additional conditions apply. Among other things, the whole loan must be secured by a registered mortgage and the relevant property value requirements must be satisfied when the loan is made.
A 25-year Division 7A loan therefore isn’t simply a way of stretching every shareholder loan out over 25 years.
The security requirements matter.
What about company and trust structures?
This is where the conversation gets more interesting in 2026.
Many family groups operate using a combination of:
- a discretionary trust;
- a private trading or investment company;
- a corporate beneficiary;
- individual shareholders; and
- loans between related entities.
Historically, unpaid present entitlements (UPEs) from a trust to a private company beneficiary have been a major Division 7A planning issue.
The ATO had taken the view that, in certain circumstances, an unpaid entitlement could amount to financial accommodation and therefore a Division 7A loan.
That position was challenged in the Bendel litigation.
The major 2026 Bendel decision
On 10 June 2026, the High Court dismissed the Commissioner’s appeal in Commissioner of Taxation v Bendel [2026] HCA 18.
The majority held that, in the circumstances considered by the Court, a corporate beneficiary’s failure to call for payment of an unpaid present entitlement did not, by itself, constitute the provision of financial accommodation or a transaction that in substance effected a loan of money for Division 7A purposes.
That is a significant development for clients using trust/company structures.
But it should not be interpreted as:
“UPEs are no longer relevant to Division 7A.”
The actual structure, trust deed, trustee resolutions, accounting records and subsequent dealings still matter.
And Division 7A contains other provisions that can potentially apply to trust arrangements, including Subdivision EA, which deals with certain payments, loans and debt forgiveness involving trusts, private companies and shareholders or associates.
The Bendel decision therefore makes a review of trust/company structures more important — not less.
The ATO’s previous guidance on UPEs is also relevant background, but the High Court decision means advisers need to distinguish between the specific circumstances considered in Bendel and other arrangements.
Don’t confuse a UPE with a shareholder loan
This distinction is particularly important.
Consider two different scenarios.
Scenario A:
A family trust distributes $200,000 of trust income to a private company as a corporate beneficiary. The entitlement remains unpaid.
That is a trust distribution/UPE issue and, following Bendel, cannot simply be characterised as a Division 7A loan merely because the company has not demanded payment in the circumstances considered by the High Court.
Scenario B:
The private company then lends $150,000 to the individual shareholder to purchase a private asset.
That is a different transaction.
You now have a potential private company-to-shareholder loan, which brings the ordinary Division 7A rules directly into focus.
The existence of a trust in the broader group doesn’t make the shareholder loan disappear.
What should clients do now?
For clients with company/trust structures, I would put these items on the review list.
1. Identify all shareholder and associate loan accounts
Don’t just look at the account called “Shareholder Loan”.
Review:
- director loan accounts;
- shareholder current accounts;
- private expenses paid by the company;
- company credit cards used privately;
- payments made on behalf of shareholders;
- related-party loans;
- interposed entities; and
- debt forgiveness or write-offs.
Division 7A’s definition of a loan is broad and can include credit and other forms of financial accommodation.
2. Recalculate 2026–27 minimum yearly repayments
For existing complying loans, check the new 8.77% benchmark rate and calculate the required repayment based on the outstanding balance and remaining term.
Don’t simply copy last year’s repayment figure.
3. Check the loan agreements
Confirm that each relevant loan has appropriate written terms.
Check the:
- parties;
- loan date;
- principal;
- interest provisions;
- term;
- security, if applicable;
- repayment provisions; and
- signatures.
4. Review the trust structure separately
If the group includes a discretionary trust and corporate beneficiary, review UPEs in light of Bendel.
This is particularly important where there are historical UPEs, sub-trust arrangements or subsequent payments and loans to shareholders or associates.
5. Don’t wait until the tax return
Division 7A problems are often much easier to solve when identified early.
By the time the accounts are being finalised, the relevant repayment deadlines may already have passed.
The practical takeaway
The 8.77% Division 7A benchmark interest rate for 2026–27 is a useful reminder that shareholder loans need active management.
If your company has lent money to a shareholder or associate, check the loan rather than assuming last year’s arrangement automatically carries forward.
And if your group includes a family trust, corporate beneficiary and shareholder loans, there is an additional reason to review the structure this year following the High Court’s decision in Bendel.
The key questions are straightforward:
Who owes whom money?
What is the legal character of each balance?
Is there a complying Division 7A loan agreement?
What is the required minimum yearly repayment for 2026–27?
And are the trust distributions and subsequent transactions consistent with the legal and tax position?
At 8.77%, ignoring a shareholder loan balance can become expensive.
But the bigger risk isn’t the interest rate itself.
It’s assuming that a balance sitting in the accounts is “just an accounting entry” when, from a tax perspective, it may represent a transaction that needs to be dealt with properly.
For clients with private companies, shareholder loans or trust/company structures, 2026–27 is a good year to put Division 7A back on the review list.
Need to Review Your Division 7A Position?
If your company has shareholder loans, director loans or related-party balances, now is a good time to review them before the 2026–27 year gets away from you.
We can help you:
- review existing Division 7A loan arrangements
- calculate the correct minimum yearly repayments
- check that loan agreements meet the requirements
- identify potential Division 7A risks
- review company and trust transactions following the Bendel decision
Don’t wait until tax time to discover a problem.
If you’re unsure whether your shareholder loan arrangements are up to date, get in touch with our team for a Division 7A review.
