30 June 2026 Division 7A Loan Clean-Up: The Urgent EOFY Task for Private Company Clients

For many Australian accounting practices, the most relevant and timely topic in June 2026 is not another general tax-time checklist. It is Division 7A.

Private company loans, unpaid present entitlements, shareholder drawings and director payments can quickly become deemed unfranked dividends if they are not reviewed before 30 June 2026. Once the income year closes, options become narrower, documentation becomes harder, and clients are often surprised by the cash required to fix historical issues.

This is particularly urgent for accountants and bookkeepers working with small business groups, family companies, trusts and director-shareholders who regularly move money between entities. June is the time to identify which balances need repayment, which need complying loan agreements, and which require frank conversations with clients before the 2025–26 income year ends.

Why Division 7A is a June 2026 priority

Division 7A of the Income Tax Assessment Act 1936 is designed to prevent private company profits being extracted tax-free by shareholders or their associates. In practice, it often applies where a company has made payments, loans or debt forgiveness arrangements involving:

• shareholders;
• directors who are shareholders or associates of shareholders;
• spouses, family members or related entities;
• family trusts with unpaid present entitlements to private companies;
• business owners who treat company bank accounts as personal cash flow.

For 2025–26, the immediate EOFY risk is that minimum yearly repayments on existing Division 7A loans must generally be made by 30 June 2026. If they are missed, the shortfall may be treated as an unfranked dividend, subject to the available distributable surplus and other rules.

Separately, loans or payments made during the 2025–26 year may need to be repaid or placed under a complying loan agreement before the company’s 2026 lodgment day. However, waiting until lodgment season often creates avoidable stress. June 2026 is the practical point to gather records, reconcile balances and assess client cash flow while there is still time to act.

The key 30 June 2026 items to review

Accountants should prioritise a targeted Division 7A review for any private company client with related-party balances. The following areas are the highest-risk items to check before year-end.

1. Existing Division 7A loan repayments

For complying Division 7A loan agreements already in place, confirm whether the 2025–26 minimum yearly repayment has been made by 30 June 2026.

The repayment calculation depends on the loan principal, remaining term and the ATO benchmark interest rate for the relevant income year. Accountants should verify the rate directly from the ATO for the 2025–26 year and ensure interest has been correctly calculated and recorded.

Common problems include:

• repayments made after 30 June and incorrectly treated as on time;
• journal entries recorded without actual cash movement where cash payment is required;
• interest calculated using an outdated benchmark rate;
• old Division 7A loan schedules not reconciled to the general ledger;
• clients making partial repayments without understanding the shortfall consequence.

2. Director drawings posted to loan accounts

Many small business company files contain debit loan balances that have accumulated through director drawings, personal expenses, school fees, mortgage payments, holidays or private motor vehicle costs.

By June 2026, these balances should be reviewed and categorised. Some amounts may be wages, dividends, loan repayments, reimbursements or genuine business expenses. Others may be loans to shareholders or associates that need Division 7A treatment.

Bookkeepers can help by reviewing bank feeds, credit card accounts and suspense codes for personal expenses. Accountants can then determine the appropriate tax treatment and documentation before the file becomes a July problem.

3. Unpaid present entitlements involving family trusts

Family trust structures remain a major source of Division 7A exposure. Where a trust makes a private company presently entitled to trust income but does not actually pay the amount, the unpaid present entitlement may require careful treatment.

Before 30 June 2026, review whether any private company beneficiary has an unpaid balance from prior years or from the current year. Depending on the facts, this may interact with Division 7A, Subdivision EA and ATO guidance on trust entitlements.

This review should be coordinated with trust distribution resolutions, trust accounts and beneficiary loan ledgers. Even if your practice has already diarised trust resolution work, do not treat that as a substitute for reviewing the company beneficiary balance.

4. Inter-entity loans in business groups

Small business groups often move funds between trading companies, bucket companies, service entities and trusts. These transactions may be commercially sensible, but they need to be documented and reconciled.

In June 2026, accountants should check whether inter-entity loan accounts are debit or credit, whether balances have changed materially during the year, and whether any private company has provided financial accommodation to a shareholder or associate.

Do not rely solely on account names. A balance labelled intercompany loan, beneficiary account, director advance or clearing account may still require Division 7A analysis.

A practical Division 7A checklist for June 2026

Use this checklist for private company clients before 30 June 2026:

• Run related-party loan reports: Extract all shareholder, director, beneficiary and inter-entity loan accounts from the 2025–26 ledger.
• Reconcile opening balances: Match prior-year Division 7A schedules to the current-year general ledger.
• Identify debit balances: Flag any amount owed to the company by a shareholder, associate, trust or related entity.
• Check existing loan agreements: Confirm loan term, principal, interest rate, repayment schedule and security status.
• Calculate the 2025–26 minimum yearly repayment: Use the current ATO benchmark interest rate and document your calculation.
• Confirm actual repayments by 30 June: Do not assume journals are enough. Check bank transactions and source documents.
• Review personal expenses: Look for private payments in company bank accounts and credit cards.
• Consider dividends or wages: Where appropriate, discuss whether amounts should be cleared via dividends, salary, bonuses or repayment arrangements.
• Review trust UPEs: Compare trust distribution resolutions, beneficiary accounts and company ledgers.
• Prepare client communication: Tell clients what must be paid by 30 June 2026, what can wait until lodgment day, and what cannot be ignored.

Example: why June action matters

Assume a private company has an existing Division 7A loan to a shareholder. The 2025–26 minimum yearly repayment is calculated at $18,000. By 20 June 2026, the shareholder has only repaid $11,000.

If no further action is taken before 30 June 2026, the $7,000 shortfall may create a deemed unfranked dividend, subject to the relevant Division 7A rules and the company’s distributable surplus. If the accountant identifies the issue in June, the client may still have time to transfer funds, declare an appropriate dividend, adjust wages where lawful and commercially appropriate, or consider other options.

If the issue is discovered in September, those options are usually more limited. That is why Division 7A should be treated as a June workflow item, not a tax return footnote.

What bookkeepers should do now

Bookkeepers do not need to provide tax advice to add significant value in June 2026. The most useful contribution is clean data and early visibility.

Before sending the file to the accountant, bookkeepers should:

• code obvious personal expenses consistently, rather than hiding them in general expense accounts;
• clear suspense accounts and ask clients for missing details;
• attach source documents to unusual payments;
• separate director drawings from wages and reimbursements;
• flag transfers between related entities;
• ensure bank reconciliations are complete to at least 31 May 2026, and preferably close to 30 June.

This helps accountants distinguish between genuine business transactions and amounts that may trigger Division 7A consequences.

How to speak to small business clients about Division 7A

Division 7A can be technical, but client communication should be simple. Avoid leading with legislation. Instead, explain the cash and tax impact.

For example:

Your company has paid some private expenses and those amounts are currently treated as money you owe back to the company. If the balance is not managed correctly by 30 June or by the relevant lodgment deadline, the ATO may treat some of it as an unfranked dividend. We need to review the balance now so you know whether a repayment, dividend, loan agreement or other action is required.

Clients are more likely to act when they understand the date, the dollar amount and the consequence. Provide a short action list rather than a long technical memo.

Where software can reduce June pressure

The biggest Division 7A challenge in June is often not the tax law. It is messy records. Bank statement gaps, uncoded transfers, historical loan balances and missing receipts make it difficult to determine what actually happened during the year.

Tools like Fedix can help practices accelerate this review. Fedix MyLedger can convert bank statements, including PDFs, scans and screenshots, into reconciled accounting data in minutes, which is useful for catch-up clients or company files that are not clean in Xero or MYOB. Its AI Working Papers and smart tax calculation features can also assist with Division 7A loan and interest calculations, while leaving the final judgement with the accountant.

As Sam Malla, CPA in Sydney, put it: "Three days of catch-up work, billed for two hours. Now we're profitable on those jobs." That kind of time saving matters in June, when practices are balancing BAS, payroll, tax planning and EOFY advisory work at the same time.

Final actions before 30 June 2026

For the remainder of June, accounting practices should not wait for full-year accounts to be perfect before starting Division 7A work. Start with risk triage.

• Create a list of all private company clients with shareholder or director loan accounts.
• Prioritise clients with family trusts, bucket companies and large debit balances.
• Calculate minimum repayments for existing Division 7A loans immediately.
• Tell clients the exact amount they need to pay before 30 June 2026.
• Document advice, assumptions and client instructions.
• Schedule post-year-end follow-up for any 2025–26 loans requiring complying agreements before lodgment day.

Division 7A is one of the most practical EOFY issues for Australian accounting firms in June 2026 because it combines technical compliance, cash flow and client behaviour. The firms that act now will reduce deemed dividend risk, avoid rushed July clean-ups and give business owners clearer choices before the year closes.

For practices dealing with messy records or catch-up company files, learn more about Fedix MyLedger at fedix.ai.

Disclaimer: This article is for general informational purposes only and does not constitute professional financial or tax advice. Always consult a qualified accountant or tax professional for advice specific to your situation. Fedix.ai provides tools to assist accounting professionals but does not replace professional judgement.