Division 7A remains a continuing compliance priority for the ATO in the private group market.
A recurring and often underestimated issue arises when a shareholder, or an associate of a shareholder, dies while a private company has an outstanding loan to that individual. The debt does not disappear on death. It remains owing to the company and must be managed during the administration of the deceased estate.
In long-standing private groups, loan accounts can accumulate over many years, representing a substantial liability that reduces the estate’s net assets, delays distributions and can create liquidity pressure for executors.
The tax consequences flow from the Division 7A deeming rules. A loan by a private company to a shareholder (or associate) can be treated as an unfranked dividend unless it is placed on a complying basis, typically requiring a written agreement, a maximum term and interest at least at the benchmark rate, together with minimum yearly repayments.
Where a loan is not complying, the primary exposure is commonly in the year the loan was made, with the assessable amount generally limited by the company’s distributable surplus. Even where a loan is compliant, a missed or insufficient minimum yearly repayment can give rise to a deemed dividend for the shortfall year, again subject to distributable surplus.
Estate administration can intensify these risks. The legal personal representative must identify the relevant loan accounts, confirm whether documentation and repayment history support compliance, and plan
how repayments or full discharge will be funded while meeting tax liabilities, administration costs and beneficiary expectations.
If the company forgives or writes off the loan, Division 7A can deem a dividend (subject to distributable surplus), and the ATO has expressed views in interpretative guidance on how those outcomes may apply after death.
Prudent planning therefore involves periodic review of loan accounts, cash-flow planning for repayment during administration, and obtaining advice before any offsets, write-offs or restructures are implemented.
This article first appeared in the Autumn 2026 issue of HLB Mann Judd Perth’s Client Alert.