Division 7A loan, when is interest calulated ?

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(Newbie)Newbie

2 Mar 2024

Hi,

I've used Division 7A, 7 year loans a few times over the years when running a business.

I now have (operationally) shutdown my business, but the business entity still exists due to Div7a loans and a small-ish amount of cash still in the business.

Its going to be a bit tight to discharge the Div7a loan within 7 years, without incurring large tax obligations - so im looking to "pay back" some money from my wages, rather than having it all handled at EOFY.

My question is, when is Div7a interest calculated ? Does it vary during the year based on the balance, like a bank loan? (so would be better off to put money in monthly), or is it calulated on the balance at the start of the year - so it doesnt matter what i put in and when, or is it calculated on june 30 - so i can just put in a lump sum on june 30 and have the total interest bill reduced ?

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ExMember22

(Champion)Champion

2 Mar 2024

The simple answer is making payments throughout the year does impact things but its a bit of a complex process to explain succinctly.

I would suggest having a look at the below ATO webpage that includes some worked examples and/or use the ATO repayment calculator to perform calculations for the different scenarios you are considering so you can see the potential different outcomes.

See: https://www.ato.gov.au/businesses-and-organisations/corporate-tax-measures-and-assurance/private-company-benefits-division-7a-dividends/in-detail/division-7a-loans#ato-Complyingloans