Using Company Money Privately?
What Division 7A Means for You
The Short Answer
A private company’s money belongs to the company. You can certainly take money out, but how you do it matters.
One of the most common questions business owners ask is:
“It’s my company. Can’t I simply transfer the money to my personal account?”
If your business operates through a company, the answer is sometimes, but not simply because you own it.
A company is a separate legal entity. Even if you are the only director and shareholder, the company’s bank account is not your personal bank account.
Money can legitimately come out as salary or wages, directors’ fees, dividends, repayment of money the company genuinely owes you, or a properly managed loan.
Each option has its own tax and record-keeping requirements.
Division 7A becomes relevant when a private company provides money or another benefit to a shareholder, or someone connected with a shareholder, outside those ordinary channels.
The practical message is simple:
Work out what the transaction is and how it will be treated before money moves.
Why Does Division 7A Exist?
At its heart, Division 7A exists to ensure that profits retained inside a private company are not used personally without the appropriate tax treatment.
Without these rules, company profits could simply be withdrawn as informal loans or used to pay private expenses without the shareholder paying the tax that would ordinarily apply.
Broadly speaking, Division 7A can treat certain payments, loans and forgiven debts as an unfranked dividend, often referred to as a deemed dividend.
That does not mean every transfer from a company is wrong.
It simply means the transaction must be identified correctly, properly documented and managed before important deadlines pass.
Who can Division 7A affect?
The rules are not limited to amounts paid directly to the person whose name appears on the company’s shares. They can also apply when a benefit is provided to an associate of a shareholder.
“Associate” is defined broadly. It can include a spouse or other relative, a business partner, a trust, or another company connected with the shareholder. Money or benefits provided indirectly through another entity can also be caught.
Being a director, by itself, does not make every transaction a Division 7A matter. In many small businesses, however, the directors are also shareholders or associates of shareholders so the rules are often relevant.
Everyday transactions that can attract Division 7A
Most issues do not begin with complex tax planning. They begin with ordinary spending or transfers that were never clearly classified. The examples below are a guide only; the correct treatment depends on the facts.
| Situation | Why it needs attention |
| Cash transfers or withdrawals | Money moved from the company to a shareholder or associate may be a payment or loan. Calling it “drawings” does not decide the tax treatment. |
| Personal expenses paid by the company | The company pays a shareholder’s private credit card, or a director transfers company money to fund a kitchen renovation. Unless properly treated, the amount may be a payment or loan. |
| A debit director loan account | A running balance may show that a director or shareholder owes money to the company. The balance should be reviewed and not simply carried forward indefinitely. |
| Private use of company assets | Using a company-owned property, boat or other asset privately for free or below market value may be treated as a payment. Other regimes, including fringe benefits tax, may also need consideration. |
| Advances described as temporary | Division 7A uses a broad concept of a loan. An advance, financial accommodation or informal arrangement can be caught even if no formal loan document existed when the money was taken. |
| A balance is written off | If the company forgives or releases a shareholder or associate from a debt, the forgiven amount may be treated as a dividend. |
| Money passes through another entity | Routing funds through a trust, partnership, related company or another person does not necessarily avoid the rules. The interposed-entity provisions can trace an indirect benefit. |
What does a director loan account actually mean?
This is where many clients become confused. A director loan account is simply an accounting record of money moving between a company and a director or shareholder.
Think of it as a running scorecard of who owes whom. Despite its name, the balance can run in either direction.
- If the company owes you money, for example, because you previously lent funds to the business, the account may be in credit. A genuine repayment of that debt will generally not be a Division 7A dividend if the balance and repayment are properly supported.
- If you owe the company money because you withdrew cash or the company paid private expenses, the account may be in debit. That is the balance most likely to need Division 7A attention.
| A SIMPLE EXAMPLE | The company pays a shareholder’s private credit card for several months and records the amounts to the loan account. If the balance shows the shareholder owes the company, it is not just bookkeeping, the balance may need to be repaid or managed under Division 7A. |
Accounting reports do not always display debits and credits intuitively. Do not rely on a plus or minus sign alone; ask what the balance actually represents.
Once the direction of the balance is clear, the next question is why the money moved.
Legitimate ways to receive company money
A payment to a shareholder is not automatically a Division 7A problem. It must, however, be classified and processed correctly.
- Salary, wages, directors’ fees or bonuses that are properly authorised and reported may be remuneration. PAYG withholding, superannuation and payroll obligations may apply.
- A properly declared dividend is taxed under the ordinary dividend rules and may carry franking credits if the requirements are met.
- Reimbursement of a genuine company expense paid personally by a director is generally the company meeting its own obligation, provided there is evidence of the expense and its business purpose.
- Repayment of money genuinely owed by the company to the shareholder is generally not a Division 7A dividend if the underlying debt is real and documented.
- Specific exclusions can apply to certain inter-company transactions, loans made in the ordinary course of a genuine money-lending business on usual commercial terms, and amounts dealt with elsewhere under the tax law. Other loans may need to satisfy the separate Division 7A complying-loan requirements. Check the precise conditions before relying on an exclusion.
The label must match what actually happened. The same transaction may also raise fringe benefits tax, deductibility, GST, payroll tax or company-law issues.
Five common Division 7A misconceptions
Most problems begin with an assumption that sounds reasonable but does not reflect how the rules operate.
“It’s my company.”
You may own the shares and control the decisions, but the company remains separate. Its bank account is not a personal offset account, and its assets are not automatically available for private use.
“I’ll put it back later.”
Timing matters. A new loan will generally need to be genuinely repaid or placed under a complying written loan agreement before the company’s lodgment day for that income year.
A repayment may also be disregarded where, having regard to the circumstances, it appears that the borrower intended to obtain another similar or larger loan from the company, or obtained company funds in order to make the repayment. Transferring funds in shortly before year-end and drawing them out again may therefore fail.
“My accountant will fix it at year end.”
Your accountant can identify options, but some solutions require a real repayment, a valid declaration, a written agreement or other action by a deadline. An after-the-event journal entry cannot always change what happened.
“I’ve always done it this way.”
Past treatment does not prove it was correct. A growing debit loan account can turn a small habit into a material exposure over several years.
“There is no loan agreement, so there is no loan.”
Division 7A looks at substance as well as labels. Informal advances, financial accommodation and amounts recorded through a loan account can still be loans for tax purposes.
How are Division 7A issues usually managed?
The right response depends on what happened, when it happened, the company’s records and the shareholder’s circumstances. Common approaches include:
- Repaying the amount. A genuine repayment made by the relevant deadline may prevent a new loan from becoming a deemed dividend. The source of the repayment matters; temporary or circular funding may not count.
- Recognising the correct type of payment. In appropriate circumstances, an amount may be salary, a directors’ fee, a dividend or repayment of a genuine debt. This must reflect the real transaction and meet the relevant requirements. It is not a universal year-end reclassification option.
- Using a complying loan agreement. If a loan cannot be fully repaid, it may be possible to place it under a written Division 7A loan agreement before the company’s lodgment day for that income year. The interest rate must be at least the annual benchmark rate, and maximum-term rules apply.
- Timing note: For Division 7A purposes, the first minimum yearly repayment is generally due in the income year following the year in which the loan was made
- Making minimum yearly repayments. Once a complying loan is operating, principal and interest must generally be paid each income year. The required amount changes with the loan balance, remaining term and benchmark rate for that year.
- Correcting the records and controls. Bank coding, loan ledgers, supporting documents and year-end reconciliations should agree. The goal is to prevent the same problem from recurring.
| IMPORTANT | A complying loan is not a permanent parking place for private drawings. It creates an interest-bearing debt to the company and an annual cash-flow commitment. |
What if the issue is not dealt with?
All or part of the payment, loan or forgiven debt may be treated as an unfranked dividend to the shareholder or associate.
The amount may be included in the recipient’s assessable income even though the transaction was described as a loan, even though no extra cash is received when the tax return is prepared.
Because the deemed dividend is generally unfranked, there is usually no franking credit to reduce the tax. Amendments, additional tax and interest may follow, along with the cost of reconstructing the company’s records.
The Commissioner has limited discretion to disregard a deemed dividend or allow it to be franked where a breach arose from an honest mistake or inadvertent omission. Relief is not automatic and should not be treated as a fallback plan.
Where a trust is also involved
Division 7A can become more complex where a private company is entitled to trust income that remains unpaid and the trustee then makes a payment or loan, or forgives a debt, for a shareholder or associate of the company.
In Commissioner of Taxation v Bendel [2026] HCA 18, the High Court confirmed that an unpaid present entitlement owing to a corporate beneficiary did not, merely by remaining unpaid in the circumstances considered, constitute a Division 7A loan. The treatment of any arrangement still depends on the trust deed, trustee resolutions, surrounding transactions and applicable law.
Other provisions—including Subdivision EA and section 100A—may remain relevant where trust funds or benefits are provided to shareholders or their associates.
If your structure includes both a company and a discretionary or family trust, the trust resolutions, unpaid entitlements, loans and movements of funds should be reviewed together. Specialist advice may be required.
Simple habits that may prevent bigger problems
- Keep company and personal bank accounts separate.
- Do not use the company card for routine private spending.
- Use clear descriptions when transferring money between yourself and the company.
- Retain receipts and note the business purpose of expenses.
- Check whether the company owes you, or you owe the company, before withdrawing funds.
- Review director and shareholder loan accounts during the year, not only after 30 June.
- Budget for interest and minimum yearly repayments where a complying loan exists.
- Ask before the company pays a significant personal amount, acquires an asset for mixed use, forgives a balance or moves funds through a related entity.
When should you speak with your accountant?
Ask before taking or using a significant amount of company money, particularly for a property deposit, renovation, investment, personal tax payment, family transfer or other large private purchase.
You should also seek advice promptly if:
- your director loan account is increasing
- the company regularly pays private expenses
- a complying loan repayment may be missed
- money has been repaid and borrowed again
- a company-owned asset is used privately
- a trust or related entity is involved in the movement of funds
Early advice usually gives you more options. Once the relevant deadline has passed, the solution may be more limited, more expensive and less tax-effective.
The practical takeaway
Owning a company does not make its money personal money. Division 7A issues can often be managed more effectively when identified early: use legitimate, properly documented ways to receive value from the business, keep accurate loan records and ask before money moves.
| BEFORE MONEY MOVES | Unsure whether a payment, loan or private benefit could fall within Division 7A? Contact Compact Accounting before completing the transaction. |
Need advice tailored to your circumstances?
If you are unsure how the issues discussed in this resource apply to you, Compact Accounting can provide taxation, business advisory or SMSF advice based on your particular circumstances.
General Information Only
This resource provides general educational information about taxation concepts affecting private companies and their owners. It does not constitute personal taxation, accounting, legal, financial product, investment or lending advice and does not take into account your particular circumstances.
Tax outcomes depend on the relevant facts, applicable law and timing. You should obtain appropriately qualified professional advice before acting or refraining from acting on this information.
Reading this resource or contacting Compact Accounting does not, by itself, create an accountant-client relationship. Any engagement is subject to our written acceptance and agreed scope of services.
Liability limited by a scheme approved under Professional Standards Legislation.
References & Further Reading
- Income Tax Assessment Act 1936 — Division 7A (in-force compilation)
- ATO — Loans by private companies (updated 2 July 2026)
- ATO — Division 7A myths debunked
- ATO — Division 7A trust entitlements
- ATO — Using business money and assets for private purposes
- ATO — TD 2025/5: repayments and reborrowing under section 109R
- High Court of Australia — Commissioner of Taxation v Bendel [2026] HCA 18
First Published: 29 July 2026
Last reviewed: 29 July 2026
