Division 7A loans can easily trip up small business owners in Australia, especially when personal expenses blur into business transactions. Understanding these rules is critical to avoid unintended tax consequences and ensuring tax compliance for business owners.

This article breaks down what Division 7A is, why it matters, and how to stay compliant so you protect both your business and your financial future.

What Is Division 7A?

Division 7A is a section of the Income Tax Assessment Act 1936 that prevents private companies from distributing profits to shareholders (or their associates) as tax-free payments. If your company provides funds or benefits to shareholders in a way that looks like income, but isn’t reported as such, it could be treated as an unfranked dividend and taxed at your marginal rate.

Division 7A applies even if:

• You operate via a trust or partnership
  
• The payment is made to a related entity (e.g. a family trust)
• The transaction is labelled something else but ultimately benefits a shareholder or associate

What the ATO Considers a ‘Loan’

Under Division 7A, a ‘loan’ can include:

• Direct payments to a shareholder or associate
  
• Use of company credit for personal expenses from business account
• Repayment of personal debts using company funds
• Any financial benefit or arrangement that creates an expectation of repayment

These are classified as loans to shareholders under Division 7A.

Real-World Examples of Division 7A Loans

Some common scenarios that may trigger Division 7A include:

• Paying personal expenses like school fees, groceries, or mortgage from the company account
  
• Using company funds to pay off a personal credit card

   

• Your business owns an asset (like a boat or property), and you use it personally

   

• Funds flow from your company to a trust and then to you

   

These examples often result in EOFY loans that need to be documented and structured to avoid being taxed.

Why it Matters: What Happens If You Don’t Comply?

If a Division 7A loan isn’t properly documented and structured:

• It will be treated as a Division 7A deemed dividend
  
• You’ll pay tax on the full amount at your personal income tax rate
  
• You may trigger ATO scrutiny and penalties

   

And no, repaying the loan the day before June 30 and withdrawing the funds again on July 1 doesn’t bypass the rules. The ATO has flagged this tactic and treats it as non-compliant under ATO loan rules.

How to Stay Compliant with Division 7A

To avoid being taxed on what the ATO considers a dividend, you need a Complying Division 7A Loan Agreement. Here’s what it must include:

Written Agreement

The loan must be documented in writing by the time the company’s tax return is due (including extensions). A properly structured Division 7A loan agreement is essential to meet ATO Division 7A rules.

Specified Loan Terms

• Up to 7 years for unsecured loans
• Up to 25 years for secured loans (must be backed by a mortgage over real property)

Minimum Yearly Repayments

Each year, you must make minimum repayments, including interest at the benchmark interest rate (ATO) published for that financial year.

📌 The ATO has a helpful Division 7A Loan Calculator to help calculate your repayments.

Common Misconceptions

Misconception #1: You can set your own interest rate.
Truth: You must use at least the ATO’s benchmark interest rate for that financial year.

Misconception #2: Only shareholders are affected.
Truth: Division 7A also applies to associates, such as family members or trusts controlled by shareholders.

Misconception #3: If I repay and redraw a loan around EOFY, it doesn’t get caught by the rules.
Truth: The ATO views this as an avoidance strategy and still treats it as a Division 7A loan.

Final Checks: Do You Have a Division 7A Loan? 

Not sure? Before finalising your EOFY accounts:

• Check with your accountant or bookkeeper
  
• Review whether you’ve paid personal expenses from your business account
• Ensure proper documentation is in place

Key Takeaways for Australian Small Business Owners

• Keep personal and business finances separate whenever possible
  
• If funds are borrowed, ensure a written Division 7A agreement is in place
• Make repayments on time and at the correct rate
• Speak with your accountant to stay compliant with ATO Division 7A rules and broader ATO loan rules

Want peace of mind? Our legal team can help you review or draft Division 7A agreements tailored to your business.

📅 Book a free consult to stay compliant and avoid costly surprises

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Revenue Share Agreements: Legal Essentials for Online Business in Australia

Thinking about a revenue share deal? Here’s what you need to know before saying yes.

Revenue sharing can be a great model for collaboration in online business. But without the right legal structure, it can also lead to confusion, disputes and in some cases, costly fallout.

At Onyx Legal, we regularly advise Australian coaches, consultants, agencies, and service providers on how to protect themselves in revenue share agreements. In this guide, we’ll walk you through the legal side of these deals so you can make informed, confident decisions.

What Is a Revenue Share Agreement?

A revenue share agreement is a contract where two or more parties agree to split the revenue generated from a product, service, or business activity. It’s commonly used in online collaborations where one party delivers the service while the other contributes marketing, leads, or tech infrastructure.

Example: A Brisbane-based business coach partners with a Sydney digital agency. The coach delivers the program, the agency assists in increasing sales by handling the funnel, and they split the revenue received from those additional sales 60/40.

This model is attractive for entrepreneurs who want to grow quickly without upfront costs. But it requires clarity to work well. Revenue share deals are often informal at first, which makes legal documentation even more important.

Without legal grounding, it’s easy to fall into mismatched expectations leading to misunderstandings, late payments, or legal risk if a deal goes sour.

Key Legal Considerations Before You Sign (Australia Context)

Before entering into a revenue share arrangement, it’s essential to get clarity on:

1. Roles and Responsibilities

Who is doing what? Spell this out in detail to avoid mismatched expectations

• Who manages delivery?
• Who is in charge of customer service, refunds, or disputes?
• What happens if there’s a problem with delivery or fulfillment?
  

2. What Counts as Revenue?

You must define:

• Is GST included in revenue?
• Are discounts or refunds deducted before the split?
• Are upsells and cross-sells included?

These questions must be settled before launching your offer.

3. When & How Will You Get Paid?

Set a clear schedule for calculating and distributing revenue shares (e.g., monthly, after reconciliation).

• Will reports be provided?
• Who handles reconciliation of payments?
• What platform is used for tracking sales and calculating revenue?
  

4. Who Owns What?

Protect your IP. Define what each party owns, especially content, customer data, and brand assets.

• If the partnership ends, who owns the email list or the funnel?
• Who retains rights to the original course, brand name, or materials?
  

5. Exit & Dispute Clauses

What happens if the relationship ends or someone doesn’t deliver? Build in:

• A notice period for ending the agreement
• Mediation or dispute resolution clauses (note: mediation is common in Australia before litigation)
• A plan for what happens to shared assets and active clients

Pro Tip: Download our Revenue Share Questionnaire to identify your legal blind spots before entering an agreement.

Revenue Share vs. Joint Venture: What’s the Difference?

While both models involve collaboration, a partnership agreement or a shareholder agreement typically involves a new business entity with shared ownership. A revenue share deal, on the other hand, like a joint venture does not create a separate entity, it’s simply a contractual agreement between parties.

Companies and Partnerships often involve:

• Shared liabilities and obligations under Australian law
• More formal structures and tax implications

Revenue share agreements are often easier to dissolve and more agile and rely upon contractual legal protection, which is why they need to be well-structured.

If you’re unsure which model is best, speak to a lawyer early. The wrong structure can have tax or liability implications including under Australian consumer law.

Why Templates Aren’t Enough (Especially in Australia)

We’ve seen many businesses rely on generic templates or verbal agreements and end up in disputes.

Here’s why templates usually fall short:

• They don’t reflect your unique revenue model or industry nuances
• They may use US-based legal terms that don’t apply under Australian law
• They often lack clauses around IP, GST, dispute resolution, or ASIC compliance

A customised agreement not only protects your interests, it also signals professionalism and builds trust with your partner.

Example: A Costly Misunderstanding

A Gold Coast based digital agency entered a 50/50 revenue share deal with a clairvoyant promoting personal horoscopes. The deal was sealed verbally. Nothing was put in writing.

The digital agency invested in re-building the website and portal for customer communications and distribution of the horoscopes on the basis that they would receive 50% of the sales.

Before launch the clairvoyant decided the website didn’t reflect what she wanted and she did not want to go ahead with the launch.

• The digital agency expected to be paid for their time for the work completed.
• The clairvoyant insisted that payment was only due from sales and that she retained the right to refuse to go ahead if she wasn’t comfortable and wanted to be compensated for the time she had lost getting the website to launch.
• With nothing in writing the digital agency could do nothing but retain the work they had done, and pursue payment.

The relationship broke down. The digital agency came to us chasing payment but the cost of doing that was likely to exceed the value of time they had already invested in the website build. Both parties walked away frustrated, no one got paid.

The lesson: Legal clarity upfront could’ve included a clause on dispute resolution and prevented the fallout.

Final Thoughts: Protect the Relationship and the Revenue

Revenue share deals can be a powerful way to grow, when they’re built on mutual understanding and solid legal foundations.

If you’re considering a partnership or collaboration in Australia, don’t wait until things go wrong. Get clear from the start.

Download Our Free Revenue Share Questionnaire

Avoid legal blind spots and enter your next deal with confidence. Get the questionnaire now.

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