From www.hallchadwickqld.com.au: Division 7A of the Income Tax Assessment Act 1936 addresses the treatment of loans and payments made by private companies to shareholders or associates, aiming to prevent tax avoidance through tax-free benefits.

If payments or loans are made without proper documentation or at below-market interest rates, they may be classified as unfranked dividends and taxed at the individual’s marginal tax rate, leading to significant tax implications.

To avoid breaches of Division 7A, private companies should ensure timely repayments, comply with market value payments, and establish formal loan agreements that meet specified requirements.

See also TD 2025/D2