Key Highlights

  • The Division 7A benchmark Interest Rate is 8.77%.
  • The benchmark was 8.37%, making the increase 0.40 percentage points.
  • A higher benchmark increases minimum yearly repayments on complying company loans.
  • It can treat certain private-company payments or loans as unfranked dividends unless conditions are met.

For many family Business owners, borrowing from their own private company is a routine part of managing cash flow. That borrowing has just become more expensive. The ATO's Division 7A benchmark interest rate for 2026–27 is 8.77%, up from 8.37% in 2025–26, which lifts the minimum yearly repayments on complying loans. It arrives as the rules around Division 7A are already shifting after the High Court's Bendel decision.

The new 8.77% benchmark rate

The ATO publishes the Division 7A benchmark interest rate each income year. For 2026–27 it is 8.77%, according to the ATO's Division 7A benchmark interest rate page. The previous year's rate was 8.37%.

The rise of 0.40 percentage points matters because the benchmark rate is built into the formula that determines how much a Shareholder or associate must repay each year on a complying Loan from a private company.

A higher rate means more of each repayment goes to interest, and the minimum yearly repayment increases even though the loan principal has not changed.

Why Division 7A exists and how a complying loan works

Division 7A is long-standing integrity law. Broadly, it aims to stop private companies distributing profits to shareholders and their associates tax-free through loans, payments or Debt forgiveness rather than taxable dividends.

Under the general rules, a loan from a private company to a shareholder or associate can be treated as an unfranked deemed dividend unless it is repaid, or put on complying terms, before the company's tax return lodgment day for the year the loan was made.

A complying loan generally needs a written agreement, an interest rate at least equal to the benchmark rate, and a maximum term of seven years for unsecured loans or 25 years for loans secured by a registered Mortgage over real property.

Each year the borrower must make at least the minimum yearly repayment. Where the repayment falls short, the shortfall can generally be treated as a deemed dividend, which is typically taxed at the borrower's marginal rate.

Hypothetical example: the cost of borrowing $200,000

Hypothetical example: a business owner borrowed $200,000 from their company during 2025–26 under a seven-year unsecured complying loan. The first minimum yearly repayment falls due in 2026–27, with seven years remaining on the term.

The minimum yearly repayment formula is the amount outstanding at the end of the previous income year, multiplied by the benchmark rate, divided by one minus (one plus the benchmark rate) to the power of minus the remaining term.

At the 2026–27 rate of 8.77%, the minimum yearly repayment works out to about $39,431.94.

Had the 2025–26 rate of 8.37% applied, the repayment would have been about $38,901.94. The rate rise therefore adds about $530 to this year's minimum repayment.

The interest component, on a simplified basis that assumes the full balance is outstanding all year, is about $17,540, which is $200,000 multiplied by 8.77%. The rest of the repayment, about $21,891.94, reduces the principal.

In practice the calculation can be affected by repayments made during the year and their timing, and the minimum repayment is recalculated each year using that year's benchmark rate. Interest paid to the company is generally assessable income to the company.

Many borrowers do not fund repayments from fresh cash. A common approach is for the company to pay the borrower a salary or declare a dividend, which may be franked, and to apply that amount against the loan.

Where that is done, the dividend or salary is generally taxable to the borrower in the usual way, and the paperwork needs to show that the amounts were genuinely paid and applied. A higher minimum repayment can therefore mean a larger taxable distribution is needed.

Why the rate keeps moving

The benchmark rate is linked to published lending rates, so it tends to follow broader interest rate conditions. The Reserve Bank lifted the cash rate to 4.85% from 3 November 2026.

That increase came after the 2026–27 Division 7A rate was set, so it does not change this year's figure. Borrowers with long-running loans, however, face a repayment schedule that is recalculated each year, which means their annual commitments can rise or fall with rates.

For borrowers on 25-year secured loans, the annual change is smaller in dollar terms, because the principal is spread over a much longer term. For seven-year unsecured loans, the effect is more noticeable.

Bendel, unpaid entitlements and the ATO's next steps

The rate rise comes as Division 7A practice is being reshaped. In Bendel [2026] HCA 18, the High Court found that unpaid present entitlements owed by a trust to a corporate beneficiary are not loans under section 109D.

According to the ATO's decision impact statement, updated on 1 July 2026, dealings with those funds may still engage Subdivision EA or section 100A. The ATO has withdrawn its earlier determination TD 2022/11.

The government is consulting on implementing the 2018–19 Budget measure to bring unpaid present entitlements within Division 7A. That measure is a proposal, not law.

Separately, the ATO's decision impact statement on Commissioner of Taxation v Hicks [2025] FCAFC 171, which deals with section 45B and Part IVA where Capital distributions are used to repay Division 7A loans, was published on 21 October. Comments close on 20 November 2026.

The ATO's preliminary view is that section 45B is unlikely to apply where the profits were those of a trust and the benefit could not have been "in substitution" for a dividend. That view is guidance, not a binding ruling.

What to watch

Borrowers with existing complying loans will generally need to recalculate their 2026–27 minimum yearly repayment using the 8.77% rate and make it by 30 June 2027.

Comments on the Hicks decision impact statement close on 20 November.

The Senate Economics Legislation Committee is due to report on the government's trust tax bills on 13 November. The proposed minimum tax on discretionary trusts, still a bill, would start on 1 July 2028 and could change how many family groups use corporate beneficiaries and private company loans.

The mid-year economic and fiscal outlook is due in December, and the benchmark rate for 2027–28 will be published by the ATO ahead of that income year.