# ACC-0002 - Division 7A minimum yearly repayment

## Answer

**Minimum yearly repayment (first year): $9,857.98**

**Controlling authority: section 109E of the *Income Tax Assessment Act 1936* (Cth).**

## Working

The minimum yearly repayment (MYR) is the constant annual amount that fully amortises the loan over the remaining term at the benchmark interest rate, using the amortisation formula given in the task (which mirrors the statutory formula in s 109E(6) ITAA 1936):

$$\text{MYR} = \frac{P \cdot r}{1 - (1 + r)^{-n}}$$

With the stated inputs:

- P (loan balance) = $50,000
- r (Division 7A benchmark interest rate, FY2025-26) = 8.77% = 0.0877
- n (remaining loan term) = 7 years

Step by step:

1. Numerator: P × r = 50,000 × 0.0877 = **4,385.00**
2. Discount factor: (1 + r)^(-n) = (1.0877)^(-7) = 0.5551829245…
3. Denominator: 1 − 0.5551829245… = 0.4448170755…
4. MYR = 4,385.00 / 0.4448170755… = 9,857.984869…

Rounded to the nearest cent:

$$\text{MYR} = \mathbf{\$9{,}857.98}$$

## Controlling authority

The Division 7A minimum yearly repayment rule is governed by **section 109E of the *Income Tax Assessment Act 1936* (Cth)**. Section 109E sets out when a private company is taken to pay a Division 7A dividend because the borrower has not made the minimum yearly repayment on an amalgamated loan, and **s 109E(6)** contains the very amortising formula reproduced in this task for calculating that minimum yearly repayment (using the benchmark interest rate defined in s 109N / set annually by the ATO). Division 7A as a whole sits in Division 7A of Part III of the ITAA 1936.

## Note on approach

I treated this as a self-contained amortisation calculation. I substituted the given figures (P = $50,000, r = 0.0877, n = 7) directly into the formula provided, computed (1.0877)^(-7) = 0.555182924…, took the complement for the denominator (0.444817075…), and divided P·r by it to get $9,857.984869…, which rounds to **$9,857.98**. For the legal authority I identified the operative Division 7A provision: s 109E ITAA 1936 is the minimum-yearly-repayment rule, and its subsection (6) is the source of the amortisation formula used here. This is a benchmarking hypothetical, not tax advice.