# Division 7A minimum yearly repayment - ACC-0002

*This is a benchmarking hypothetical, not tax advice. Figures are as at FY2025-26.*

## Answer

**Minimum yearly repayment for the first year: $9,857.98**

## Working

The minimum yearly repayment (MYR) is the amount that fully amortises the loan over the
remaining term at the Division 7A benchmark interest rate, using the annuity formula
given in the task:

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

Inputs:

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

Step by step:

1. `(1 + r)^-n = (1.0877)^-7 = 0.5551829245...`
2. `1 - (1 + r)^-n = 1 - 0.5551829245 = 0.4448170755...`
3. `P * r = 50,000 x 0.0877 = 4,385.00`
4. `MYR = 4,385.00 / 0.4448170755 = 9,857.9848698...`

Rounded to the nearest cent:

**MYR = $9,857.98**

## Controlling authority

The Division 7A minimum yearly repayment rule is in **section 109E of the Income Tax
Assessment Act 1936 (Cth)**.

- **s 109E(1)** sets the trigger: a private company is taken to pay a dividend if a
  shareholder (or associate) fails to make the minimum yearly repayment on an amalgamated
  loan by the end of the income year.
- **s 109E(5)** contains the formula for the amount of the minimum yearly repayment. It is
  an annuity-style amortisation calculation equivalent to the formula used above:

  ```
                   Amount of the loan not repaid by the end of the previous year
  Minimum  =  -----------------------------------------------------------------------
  yearly                 1 - ( 1 / (1 + benchmark rate)^(remaining term) )
  repayment              ------------------------------------------------
                                       benchmark rate
  ```

  Rearranged, this is `P * r / (1 - (1 + r)^-n)`, the formula applied here.

- The **benchmark interest rate** used in that formula is defined in **section 109N(2)**
  as the "Indicator Lending Rates - Bank variable housing loans interest rate" published
  by the Reserve Bank of Australia for the relevant year (here, 8.77%).
- **Section 109N** is the related provision setting the criteria for a loan to be on
  "complying" terms (written agreement, minimum interest rate, maximum term of 7 years
  unsecured / 25 years for a qualifying secured loan).

So the controlling authority for the minimum yearly repayment rule and its calculation is
**s 109E (in particular s 109E(5)) of the Income Tax Assessment Act 1936 (Cth)**, read with
the benchmark-rate definition in **s 109N(2)**.

## Approach

I read the task, applied the annuity/amortisation formula exactly as specified
(`MYR = P * r / (1 - (1 + r)^-n)`) with P = $50,000, r = 0.0877, n = 7, computed the value
to full precision and rounded to the nearest cent, then identified the controlling
Australian statutory authority for the Division 7A minimum yearly repayment rule
(s 109E ITAA 1936, with the benchmark rate per s 109N).