How to take money out of your company and avoid Division 7A

If you’re a company director or shareholder in Australia, it might be tempting to see business funds in the bank and dip into them when you need some cash. After all, you own the company right? Well, in the eyes of the Australian Tax Office, the money in the company doesn’t automatically belong to you.​

In this guide, we’ll briefly explain Division 7A rules and why it’s problematic, then cover the best ways to take money from your company so you avoid the complex and costly parts of Australian tax law.​

If you withdraw money from your company without proper planning or structure, it can trigger unexpected tax consequences, particularly Division 7A.​

Division 7A is a set of tax rules designed to stop company owners (and their associates) from pulling cash, assets or other benefits out of the business tax-free.​

If you take money out of the company informally without a compliant loan agreement (or via one of the other compliant methods outlined below), the ATO will consider it a ‘deemed dividend’. That means the entire loan balance will be treated as personal income without the usual franking credits to offset your personal income tax.​

When the ATO treats a withdrawal as an unfranked dividend:​

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The bottom line is if you want access to company funds, you should use one of the proper methods below.​

One of the most straightforward ways to take money from the company is to pay yourself a salary or director’s fee. ​

It’s treated just like paying an employee which requires:​

This method is beneficial for paying out a predictable income, contributing to superannuation and helps with borrowing capacity for personal finance (like home loans).​

If the company has made a profit and paid tax on it, you can distribute after-tax profits to shareholders as franked dividends (i.e. dividends with tax credits attached).​

This is a great option if you don’t want the hassle of payroll reporting or contributing to superannuation.​

There are some key requirements for paying dividends:​

If you’ve loaned personal funds to your company (rather than contributing capital), you can be repaid without any tax consequences, as long as the loan was properly documented from the start, repayments are tracked, and no interest is charged (unless agreed when the loan was set up).​

If you’ve paid for any business costs such as software, travel or equipment from your personal account or debit/credit card, the company can reimburse you tax-free.​

You will need to:​

If none of the other options are suitable and you really need to take funds from the company, you can set up a Division 7A compliant loan. ​

This requires:​

We would recommend only doing this as a last resort, given the ongoing compliance, plus the impact that interest and repayment obligations would have on your personal cashflow.​

Before moving money out of the company, get in touch with your accountant.  They can help you structure things properly, avoid unexpected tax consequences, and keep you on the right side of the ATO.​

Whatever route you choose, keeping clear records and supporting evidence is crucial.​

When it comes to accessing company funds, taking the time to plan and get advice when needed helps you stay compliant, avoid stress and make the most of the hard-earned money sitting in your company.​