What you need to know about ATO crackdowns on personal use of company resources

As a trade business or maintenance franchise in your first five years of business, navigating the complexities of business finance can feel overwhelming. Blurring the lines between personal and business finances is a common trap - one the Australian Taxation Office (ATO) is cracking down on.

If you've ever used company funds or resources for personal expenses, even unintentionally, you could be at risk of serious tax consequences under Division 7A. Here's what you need to know to stay compliant and avoid costly mistakes.

What Is Division 7A?

Division 7A is a section of tax law that prevents private company shareholders (or their associates) from accessing company profits or assets without paying the appropriate tax. Whether it’s a loan, payment, or forgiven debt, breaching these rules can result in the ATO treating the benefit as a deemed unfranked dividend, taxed at your personal marginal tax rate.

Common scenarios that can trigger Division 7A include:

• Using company assets for personal purposes without proper documentation.

• Taking out loans from the company without a complying loan agreement.

• Incorrectly recording repayments or re-borrowing to pay off Division 7A loans.

How to stay compliant and avoid costly mistakes

As a growing trade or maintenance franchise, every dollar counts. Here are steps to protect your business from Division 7A risks:

1. Keep personal and business finances separate: Avoid paying personal expenses from a company account. If you must, ensure proper records are kept.

2. Document every transaction: Maintain detailed records for all payments and receipts involving your company, associated trusts, and shareholders.

3. Establish complying loan agreements: If the company lends money to shareholders or their associates, ensure it’s backed by a written agreement with terms that meet Division 7A requirements.

4. Stay on top of deadlines: Any loan repayments or agreements must be finalised before the earlier of the due date or the actual lodgement date of the company’s tax return.

Common mistakes to avoid

Even seasoned franchisees can stumble on Division 7A issues. Watch out for these pitfalls:

• Failing to account for personal use of company assets.

• Forgetting to apply the correct benchmark interest rate to loans.

• Mismanaging repayments, such as re-borrowing funds to pay off a Division 7A loan.

Take control of your finances today

Don’t let tax laws or bookkeeping mistakes hold back your franchise’s growth. The AccNav Small Business Foundations Course and Ultimate Bookkeeping Series are designed specifically for trade and maintenance businesses like yours, helping you:

• Understand your tax obligations.

• Build a strong financial foundation.

• Maximise savings and scale profits.