If You've Ever Paid for Groceries From the Business Account, Read This

Tue, 13 Oct 2026 10:42:54 +1100

If You've Ever Paid for Groceries From the Business Account, Read This

It happens in almost every small business. A card tap in the wrong place, a quick transfer to cover a bill, a personal purchase that "will get sorted later". It feels minor. What it costs you depends entirely on how your business is structured.

If You're a Sole Trader

You and the business are the same legal person, so you can take money out freely. The problem is records. When personal and business spending sit in one account, every deduction you claim has to be separated from the personal items, and anything you cannot clearly show was for the business is at risk if reviewed.

If You Operate Through a Company

This is where it gets more serious. A company is a separate legal entity, and money taken out for personal use is not automatically yours to take. Personal spending paid from a company account can be treated as a loan to you, or as a dividend, depending on how it is documented.

Division 7A can apply to loans from a private company to a shareholder or an associate. Without a compliant loan agreement and the required repayments, the amount can be treated as an unfranked dividend, taxed in your hands.
Informal withdrawals are exactly what this rule is aimed at. The intention to "sort it out later" does not change the treatment.

Where It Goes Wrong

Personal costs paid from the company account, then left unaddressed until year-end.
Directors paying business costs personally and not recording the reimbursement.
No clear record of what was a salary, a dividend, or a loan.

A Simple Fix

Open a separate business account and stop using it for personal spending.
Pay yourself properly, through salary, drawings or dividends, on a regular schedule.
If you have already mixed them, sort it out with your accountant before the year-end, not at lodgment.

RBizz can untangle mixed personal and business spending and put a clean structure around it. Get in touch before the next financial year-end, while there is still time to fix it properly.

Division 7A Explained: The Hidden Tax Risk in Company Loans to Directors

Wed, 15 Jul 2026 19:57:16 +1000

Division 7A Explained: The Hidden Tax Risk in Company Loans to Directors

It's one of the most common ways a company owner accidentally creates a tax problem for themselves: taking money out of the company informally, without realising the ATO has specific rules designed to treat that withdrawal as taxable income.

That's Division 7A — and it catches out far more businesses than most owners expect, usually not because anyone was trying to avoid tax, but because nobody realised the rule applied to their situation.

What Division 7A Actually Is

Division 7A is an anti-avoidance provision in the tax law designed to stop company profits being extracted by shareholders or their associates (including directors) in a way that avoids paying tax on that income as a dividend.

In plain terms: if you or an associated entity takes money, an asset, or forgiven debt out of a private company — and it isn't properly structured as salary, a genuine loan, or a dividend — the ATO can treat it as an unfranked dividend. That means it becomes assessable income in your hands, generally without the benefit of franking credits, which usually results in a higher personal tax bill than if it had been handled correctly from the start.

The Situations That Commonly Trigger It

Division 7A doesn't only apply to obvious "loans." It can be triggered by:

Informal director loans — money taken from the company account for personal use without a loan agreement in place.
Use of company assets — a director using a company-owned property, vehicle, or other asset without paying market value for that use.
Debt forgiveness — the company writing off an amount owed by a director or associate.
Payments to associated entities — not just the director personally, but related trusts, family members, or other related businesses.
Unpaid present entitlements (UPEs) — trust distributions owed to a corporate beneficiary that remain unpaid can, in some circumstances, also fall within Division 7A's scope.

The common thread is simple: value has left the company and reached a shareholder or associate, without being properly taxed as a dividend, salary, or a compliant loan.

How to avoid the problem

The good news is that Division 7A is entirely manageable — it's a compliance issue, not an unavoidable tax cost, provided it's addressed at the right time.

1. Put a complying loan agreement in place

If money is genuinely intended to be a loan, it needs a written agreement that meets specific requirements — including a market interest rate and a maximum loan term — put in place before the company's tax return lodgment date for the year the loan was made.

2. Make minimum yearly repayments

A complying Division 7A loan requires minimum repayments each year, covering both principal and interest. Missing a minimum repayment can trigger a deemed dividend for the shortfall.

3. Pay for personal use of company assets at market value

If a director uses a company asset personally, charging (and actually paying) a market rate for that use avoids the issue arising in the first place.

4. Deal with unpaid trust entitlements correctly

Where a trust owes an unpaid distribution to a corporate beneficiary, specific sub-trust or loan arrangements may be needed to keep the arrangement compliant.

5. Review before lodgment, not after

Because the compliance window is generally tied to the lodgment date of the company's tax return, informal withdrawals from earlier in the year can often still be fixed — but only if they're identified and addressed before that return is lodged.

Why This Gets Missed So Often

Division 7A issues usually don't come from deliberate tax avoidance. They come from:

A director treating the company bank account like a personal one, especially in owner-operated businesses
Assuming an informal understanding ("I'll pay it back eventually") is enough
Not realising trust distributions to a company can also be caught by the rule
Discovering the issue during a tax return review, after the compliance window has already closed

The Cost of Getting This Wrong

If Division 7A applies and nothing is done to fix it, the amount involved can be treated as an unfranked dividend in the relevant shareholder's hands — increasing their personal tax liability, often unexpectedly, and sometimes for an amount they no longer have on hand because it was spent long before the tax return was prepared.

Catch It Before It Costs You

If your company has ever paid for a director's personal expenses, let a director use a company asset, or has unpaid trust distributions sitting on the books, it's worth a proactive Division 7A review — ideally well before your company's tax return is due.

RBizz reviews director loans, trust distributions, and related-party transactions before they become a tax problem — schedule a free consultation to check your company's position.

RBizz Corporate Accountants - Resources #Division 7A

If You've Ever Paid for Groceries From the Business Account, Read This