Division 7A Benchmark Interest Rate for 2025–26: What Has Changed?
If your private company provides loans to shareholders or their associates, Division 7A of the Income Tax Assessment Act 1936 is likely on your radar. A key part of Division 7A compliance is applying the correct benchmark interest rate. For the 2025–26 income year, the benchmark interest rate has been reduced to 8.37%, down from 8.77% in 2024–25.
What Is the Division 7A Benchmark Interest Rate?
The benchmark interest rate under Division 7A sets the minimum interest rate that must be charged on loans from private companies to avoid the loan being treated as an unfranked dividend.
For each income year, the ATO adopts the “Indicator Lending Rates – Housing loans; Banks; Variable; Standard; Owner-occupier” figure published by the Reserve Bank of Australia (RBA) just before the start of that year.
New Rate for 2025–26:
8.37% (reduced from 8.77% in 2024–25)
This rate applies to all complying Division 7A loan agreements during the 2025–26 income year.
Why the Benchmark Rate Matters
Failing to charge interest at or above the benchmark rate on a Division 7A loan can result in the loan amount being deemed a dividend and included in the shareholder’s assessable income—without franking credits.
By ensuring your loan meets the benchmark interest rate and other Div 7A conditions (such as maximum terms and minimum yearly repayments), you can avoid unwanted tax consequences.
Stay Compliant with Division 7A
Now that the 2025–26 benchmark rate is available, it’s time to:
- Review existing Division 7A loan agreements
- Ensure the new rate of 8.37% is applied from 1 July 2025
- Recalculate minimum yearly repayments if necessary
Need help navigating Division 7A?
We assist businesses with:
- Drafting compliant Division 7A loan agreements
- Reviewing private company loan structures
- Minimising the risk of deemed dividends
Get in touch to ensure your Division 7A arrangements remain fully compliant for the 2025–26 income year.