Directors Loan & Dividends

(Newbie)Newbie

24 Sept 2025

I have a Directors loan (from Company > Director) that has built up over a number of years primarily through owners drawings where my tax accountant didn't declare all drawings as directors fees at the time.

A portion of this loan has been allocated to my personal tax return which has resulted in a $6k tax debt.

I don't fully understand the relationship between this loan and the dividends calculated.

To what portion of the dividend paid should the loan amount be reduced?

How is the minimum amount payable (via dividends) calculated on directors loans?

Also what is the difference between a Franked Amount, Franking Credit and Unfranked Amount in relation to dividends?

0 likes

365 views

2 replies

365 views

2 replies

All replies

ATO Certified Response

RachelATO

(Community Moderator)Community Moderator

ATO Certified Response

26 Sept 2025

Hi @eve,

A director’s loan is when a company gives money to a director or shareholder. If this loan isn’t properly documented or repaid, we may treat it as a Div 7A dividend, which means it could be taxed like income.

If your company pays you a dividend, you can use that money to repay part or all of the director’s loan. If the dividend is unfranked, it may not be taxed again if it’s used to repay the loan.

To reduce the loan amount, the dividend must be:

declared by the company
applied directly to the loan balance.

So, if you receive a $6,000 dividend, and it’s used to repay the loan, the loan balance reduces by $6,000.

If the loan is under a complying loan agreement, we require a minimum yearly repayment, which will include the principal and interest. You can use the Div 7A calculator to work out the exact amount you need to repay each year.

When looking and franked and unfranked dividends, here’s what the terms mean:

Franked Amount: This part of the dividend has already had company tax paid on it. You get a franking credit, which helps reduce your personal tax.
Franking Credit: A credit for the tax the company already paid. You include it in your income but also claim it as a tax offset.
Unfranked Amount: No company tax has been paid on this part. You pay full tax on it as personal income.

0 likes