Division 7A Benchmark Interest Rate Rises to 8.77% for 2026-27

The Division 7A benchmark interest rate has risen to 8.77% for the 2026-27 income year, up from 8.37% for 2025-26. This is the rate that matters if your private company has ever lent money to you, a shareholder or an associate, because it sets the minimum yearly repayment needed to keep that loan compliant. A repayment that was enough last year can fall short this year purely because the benchmark moved, even where nothing else about the loan has changed. This article sets out what the rate governs, why the rise matters even on an unchanged loan balance, and what to check before the next repayment falls due.

What the benchmark rate actually sets

Division 7A exists to stop a private company's profits reaching a shareholder tax-free, disguised as a loan rather than a dividend. If your company lends you money and that loan does not meet the rules for a complying loan agreement, the ATO can treat the whole amount as an unfranked dividend in your hands, taxed at your marginal rate with no franking credits to soften it. It is one of the more punishing outcomes in the tax system precisely because it applies to genuine, well-intentioned arrangements just as readily as deliberate ones, if the paperwork and the repayments are not kept current.

A complying loan needs a written agreement, a maximum term of generally seven years, or 25 years if secured by a registered mortgage over real property, and minimum yearly repayments calculated using the benchmark rate. The rate is set each year from the Reserve Bank's indicator rate for standard variable owner-occupier housing loans, published shortly before the income year begins, which is why it moves with the broader interest rate cycle rather than being fixed by the ATO itself.

Once a loan agreement is in place, the benchmark rate for each income year determines the minimum yearly repayment for that year, calculated against the loan's outstanding balance. It is not a rate you negotiate or lock in at the start of the loan; it resets annually, so a loan written several years ago is still exposed to this year's increase in exactly the same way as a brand new one.

Why this year's jump matters

A 0.4 percentage point rise sounds small until you apply it to a large loan balance. The minimum yearly repayment on a complying loan is calculated using the benchmark rate for that income year, so the amount you need to repay to stay compliant for 2026-27 is higher than it was for 2025-26, on the same loan balance. If your company has an existing shareholder loan from a prior year, the higher rate applies to this year's repayment calculation, not just to loans written from scratch this year.

What happens if the minimum repayment is not met

Underpaying a complying loan's minimum yearly repayment does not just mean catching up next year. The shortfall between what was required and what was actually repaid is treated as a deemed unfranked dividend to the borrower in that income year. For a shareholder who has not budgeted for the increase, that can turn into an unexpected and unwelcome addition to their taxable income, on top of whatever else they already had to declare for the year.

This is a common trap for a family group that automates its Division 7A repayments, or simply pays the same dollar figure each year out of habit. A repayment that was sufficient last year, at 8.37%, may fall short this year purely because the rate moved, even if nothing else about the loan changed.

Who this affects

• Directors and shareholders with an existing complying Division 7A loan from their private company.
• Family groups where a company has advanced funds to a related trust, which can also fall within Division 7A.
• Anyone drawing further funds from a private company this year on top of an existing loan balance.

What to do now

Recalculate the minimum yearly repayment for each complying loan using 8.77%, rather than assuming last year's figure still applies. If repayments are made through a combination of cash and franked dividends, check that the total still meets the higher threshold for the year. And if a loan is close to its maximum term, factor the new rate into what remains payable before it needs to be fully repaid.

It is also worth checking the loan agreement itself while you are recalculating repayments. A written agreement that has not been reviewed in several years can be a source of its own problems, separate from the rate, if the original terms were never quite put in writing correctly or the loan has been added to informally since it started.

Talk to us before the shortfall becomes a dividend

A Division 7A shortfall is far cheaper to fix before 30 June than after, when the only options left are limited and time-pressured. If your company has a shareholder loan on the books, we can work through what the new rate means for your specific repayment schedule as part of our business tax and compliance work for your group.

Disclaimer: This article contains general information only and does not constitute financial, legal or tax advice. It has been prepared without regard to your objectives, financial situation or needs. Tax and superannuation laws change frequently, and the information in this article may not reflect the current law or may become inaccurate over time. Before acting on anything in this article, you should consider its appropriateness to your circumstances and seek advice from a registered tax agent or qualified adviser.