# ACC-0002 - Division 7A Minimum Yearly Repayment

## Answer

The minimum yearly repayment (MYR) for the first year is **$9,857.98**.

## Working

The formula for the minimum yearly repayment that fully amortises the loan over the remaining term is:

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

Given values:
- P = $50,000 (loan principal)
- r = 0.0877 (benchmark interest rate of 8.77%)
- n = 7 (remaining loan term in years, the maximum for an unsecured complying loan)

Calculation:

```
Numerator:   P * r = 50,000 * 0.0877 = 4,385.00

(1 + r)^(-n) = (1.0877)^(-7) = 0.55518292...

Denominator: 1 - (1 + r)^(-n) = 1 - 0.55518292... = 0.44481708...

MYR = 4,385.00 / 0.44481708...
    = 9,857.9848...

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)** (ITAA 1936).

Section 109E sets out the formula for calculating the minimum yearly repayment that must be made on a complying loan in order to prevent the outstanding balance from being treated as an unfranked dividend in the income year. The benchmark interest rate used in the calculation is determined each year by the Commissioner of Taxation under section 109N.

For completeness, the relevant legislative framework is:
- **Section 109E ITAA 1936** - the minimum yearly repayment formula (the controlling authority for the MYR rule)
- **Section 109N ITAA 1936** - the benchmark interest rate
- **Division 7A ITAA 1936** (sections 109B-109ZD) - the broader regime under which complying loans are regulated to prevent disguised distributions from private companies to shareholders

## Approach

This task required applying the standard annuity payment formula (as specified in the prompt, consistent with the Division 7A MYR formula in s 109E ITAA 1936) to the given inputs. The controlling authority is the Income Tax Assessment Act 1936 (Cth), specifically section 109E, which codifies the minimum yearly repayment obligation for complying loans under Division 7A.