You set up a company for your production business. It’s a smart move. Asset protection, investor flexibility, a professional structure for grants and funding. All good things. But there’s a piece of tax law that comes with the territory, and if you haven’t heard of Division 7A yet, it’s worth getting across.
It’s not complicated once you know the basics. But ignore it and you could find yourself with an unexpected tax bill at the worst possible time (like mid-production).
It’s an easy trap to fall into, you own the company so you think you can take money out whenever you like. However the company is a separate legal entity, so money taken out needs to be wages, a loan or a dividend. This blog looks at taking money out as a loan.
What is Division 7A?
Division 7A is a provision in the Australian tax legislation designed to prevent funds from a private company being provided to shareholders or their associates tax-free, disguised as loans or informal payments.
In plain English: if you take money out of your company without doing it properly, the ATO may treat that withdrawal as a deemed unfranked dividend and will tax you accordingly, even if that was never your intention.
Why filmmakers are particularly exposed
Film industry cashflow is notoriously unpredictable. Grants, investor contributions, and distribution payments often arrive in lumps and at irregular intervals. In the gaps, it’s tempting to dip into the company account to cover personal expenses for rent, travel or just living costs between projects. The urge is one we all relate to.
But without proper documentation and structure, those withdrawals can trigger Division 7A.
Common situations that can create a Division 7A problem include paying personal expenses through the company, taking informal drawings instead of wages, using company funds to develop a personal project without a formal agreement, or having the company pay for travel that isn’t strictly business-related.
None of these are inherently wrong. The issue is the absence of structure around them.
What actually counts as a loan?
The ATO defines “loan” broadly under Division 7A. It includes cash advances, but also any form of financial accommodation, which includes the company paying a personal bill on your behalf or extending informal credit.
If the arrangement isn’t documented correctly, the ATO can deem it a dividend and include it in your assessable income for that year, regardless of whether you intended to pay it back.
How to handle it properly
The most common way to manage Division 7A is through a compliant loan agreement. To satisfy the ATO’s requirements, the loan needs to be in writing, have a maximum term of seven years for an unsecured loan (or up to 25 years if the loan is secured by a registered mortgage over real property), include minimum yearly repayments, and apply at least the benchmark interest rate set by the ATO each year. For the 2025–26 financial year, that rate is 8.37%.
One important timing point: the written loan agreement must be in place before the due date or lodgement day of the company’s tax return for the year in which the funds were provided. This is a firm deadline: if you miss it, you lose the option to treat that withdrawal as a compliant Division 7A loan for that year.
If you miss a minimum yearly repayment, the shortfall can be treated as a deemed dividend in that income year. So the structure only works if you actually follow it.
The cleaner long-term solution is to pay yourself through proper mechanisms from the start: wages, director fees, or formally declared dividends. These are straightforward, well-documented, and avoid the Division 7A conversation entirely.
What the ATO is currently focused on
The ATO continues to focus on shareholder withdrawals and private company distributions as part of its compliance programs. Productions with incomplete records or informal arrangements between the company and its directors are exactly the type of situation that attracts scrutiny.
If your Xero file has a running director loan account with no formal agreement behind it, that’s worth addressing sooner rather than later.
A note on reconstructing records
If you’ve been operating informally and are concerned about your current position, it’s worth getting across this before lodging your next tax return. In some cases, arrangements can be restructured; but timing matters, and the rules are specific.
This is not an area to navigate without advice.
The bottom line
Division 7A isn’t designed to punish filmmakers. It’s designed to ensure that funds from a private company are distributed transparently and taxed appropriately. With the right structure in place, you can still access your company’s resources effectively. You just need to do it properly.
If you’re not sure whether your current setup is compliant, or you’ve got a director loan account sitting in your Xero file with nothing formal behind it, we’d love to help. Get in touch with the team at Above The Line Accounting to book a free consult and we’ll walk you through where you stand.
This blog provides general information only and does not constitute personal financial or tax advice. It does not account for your specific circumstances. For tailored advice, please consult a registered tax agent at Above The Line Accounting.
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