# Division 7A Minimum Yearly Repayment - ACC-0002

## Answer

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

## Working

The minimum yearly repayment (MYR) is the level annuity that fully amortises the loan balance over the remaining term at the benchmark rate:

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

Inputs (FY2025-26 hypothetical):

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

Step by step:

1. Numerator: P × r = 50,000 × 0.0877 = **4,385**
2. Discount factor: (1 + r)^(-n) = (1.0877)^(-7) = **0.5551829245...**
3. Denominator: 1 - 0.5551829245 = **0.4448170755**
4. MYR = 4,385 / 0.4448170755 = **9,857.9842...**

Rounded to the nearest cent: **$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 minimum yearly repayment on an amalgamated loan was not made, and **subsection 109E(5)** contains the formula for the minimum yearly repayment (amount of the loan not repaid by the end of the previous year, multiplied by the benchmark interest rate, divided by the annuity factor over the remaining term). The benchmark interest rate itself is defined in **section 109N** of the same Act.

## Note on approach

I applied the standard ordinary-annuity (amortisation) formula given in the task, substituting the stated balance, benchmark rate, and remaining term. The discount factor (1.0877)^(-7) was computed to full precision and the final result rounded to the nearest cent only at the end to avoid intermediate rounding error. The controlling authority is the Income Tax Assessment Act 1936, with the MYR formula in s 109E(5) and the benchmark rate in s 109N. This is a benchmarking hypothetical, not tax advice.