# Division 7A minimum yearly repayment - ACC-0002

## Answer

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

## Working

Using the amortisation formula given:

MYR = P x r / (1 - (1 + r)^-n)

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

Step by step:

1. (1 + r) = 1.0877
2. (1 + r)^-7 = 1.0877^-7 = 0.5554764...
3. 1 - (1 + r)^-7 = 0.4445236...
4. P x r = 50,000 x 0.0877 = 4,385
5. MYR = 4,385 / 0.4445236 = 9,857.98 (rounded to the nearest cent)

**MYR = $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(5) sets out the formula for the minimum yearly repayment (amount of the loan not repaid at the end of the previous year, multiplied by the benchmark interest rate, divided by the relevant factor that amortises the loan over its remaining term). The benchmark interest rate it refers to is defined in section 109N(2) (the indicator lending rate published by the Reserve Bank of Australia for the relevant year). The 7-year maximum term for an unsecured complying loan, and the requirement that the loan be put on complying terms in the year it is made, come from section 109N.

## Note on approach

I applied the closed-form amortisation formula exactly as specified in the task, substituting P = 50,000, r = 0.0877, and n = 7, then rounded the result to the nearest cent. The figure was confirmed by direct numerical evaluation. I identified the controlling authority as section 109E ITAA 1936 (the operative minimum-yearly-repayment provision), with section 109N supplying the benchmark-rate definition and the term/complying-loan conditions referenced in the scenario. This is a benchmarking hypothetical and not tax advice.