Common Division 7A Misconceptions — A Key ATO Focus In 2025 (Feb 25 Tax Update)

Published on 4 February 2025 by Drew Pflaum
Categories: Insights & Updates

Relevant For:

Private company owners, directors, financial controllers and bookkeepers needing clarity on Division 7A compliance.

Key Points:

• Division 7A applies to loans, payments and benefits from private companies, not just shareholders.
• Journal entries alone may not offset minimum yearly repayment obligations.
• Personal use of company funds triggers Division 7A considerations.
• Regular monitoring ensures compliance and avoids last-minute mistakes.
• ATO warns that short-term repayments may not avert Division 7A obligations.

Full Article:

The ATO is intensifying its focus on Division 7A compliance through to 2025.

Despite ongoing educational efforts, confusion still abounds, with many business owners and advisers inadvertently misapplying the rules. As a firm dedicated to problem-solving and helping our clients thrive, Munro’s believes that understanding and properly managing Division 7A obligations is essential for safeguarding wealth and minimising tax exposure.

Below are the most common misconceptions:

“I own the company, so I can freely use its funds.”

Using company money personally without a proper loan agreement risks triggering a deemed dividend under Division 7A.

“Division 7A only affects shareholders.”

Payments or loans to associates (including family members) can also trigger Division 7A obligations.

“I don’t need detailed records for payments or loans.”

Inadequate documentation draws scrutiny. Keeping accurate records helps substantiate transactions and maintain compliance.

“I can simply declare a late dividend via journal entry to offset a loan.”

Dividends must be correctly determined and recorded. Retrospective entries do not automatically neutralise Division 7A liabilities.

“I can channel funds through another entity to bypass Division 7A.”

Arrangements involving trusts or similar structures can still be caught by anti-avoidance provisions.

“The same interest rate applies each year to my Division 7A loan.”

ATO benchmarks vary annually, so monitoring the current rate is critical to avoiding underpayment.

“ATO discretion will favour me if my tax adviser got it wrong.”

Relying on incorrect advice does not guarantee relief. Business owners remain responsible for ensuring correct application.

“Making a temporary repayment before the company’s lodgement day solves everything.”

Short-term transfers may not necessarily prevent Division 7A from applying.

Division 7A Accounting

At Munro’s, we recommend frequent monitoring of Division 7A transactions. Proper planning and timely repayments can help avert inadvertent breaches. Heavy reliance on last-minute journal entries is risky and often fails to meet the ATO’s scrutiny. By taking a proactive approach, we help ensure that your affairs remain in safe hands.

More about Division 7A Accountant Management & Fixes here.