Division 7A loan interest rate — ATO benchmark history.

The ATO publishes the benchmark for each year of income (1 July – 30 June). Each year of an existing Division 7A loan accrues at that year's published rate — so a long-running secured loan sees the rate change each test year as the underlying RBA reference rate moves.

Section 109N(2) of the Income Tax Assessment Act 1936 defines the benchmark rate for each year of income as the "benchmark interest rate" published in respect of that year. The ATO sources the published rate from the RBA Statistical Table F5 (Indicator Lending Rates) — specifically the rate for bank variable housing loans, Standard, as published by the RBA in May of the year preceding the relevant year of income.

Three things to note about the rate-setting process:

• The rate is locked once published. Even if the underlying RBA rate moves materially during the year of income, the Division 7A benchmark for that year doesn't change — it's set by the May value of the year prior, full stop.
• The ATO publishes annually around May or June. Sometimes earlier in May; sometimes early June. The rate for FY27 (year of income commencing 1 July 2026) will be published around May/June 2026.
• The rate tracks but isn't identical to home loan rates. The RBA Indicator rate is a reference benchmark, not a market rate — it's typically higher than actual bank offers because it's not discounted for product features. Don't confuse the Division 7A benchmark with the rate you'd get on your own home loan today.

A common misconception is that a Division 7A loan locks in the rate from origination. It doesn't. Each test year of an existing loan applies that year's published benchmark to compute the minimum yearly repayment. Three implications:

1. MYR changes year to year. When the benchmark rises (FY23 → FY24 jumped 4.77% → 8.27%), the MYR on every existing Div 7A loan in the country rose with it that year. Shareholders servicing existing loans saw their annual repayment obligation increase materially without any change to the loan agreement itself.
2. Loan agreements typically reference "the benchmark rate" rather than fixing a specific %. A well-drafted agreement says "interest rate is the ATO Division 7A benchmark rate as published from time to time" — the rate floats with each year's publication, no amendment required. A poorly drafted agreement that names a specific rate becomes non-compliant the year the benchmark moves above it, unless the agreement is amended in writing before lodgement day.
3. The MYR recomputes at the start of each test year. Year-1 MYR is computed from the original loan amount at the year-1 rate. Year-2 MYR is computed from the balance at start of year 2 (i.e. after year-1 principal repayment) at the year-2 rate over the remaining term. The calculator shows this recomputation year-by-year — though it applies the single user-supplied rate to every year (a cashflow-planning view); compliance recomputation uses the actual published rate per year.

Practically, the rate framework means:

• Don't budget Div 7A MYR using last year's rate. Check the ATO publication around May/June for the upcoming year of income; don't assume the rate is unchanged.
• Don't fix the rate in the loan agreement. Reference "the ATO Division 7A benchmark rate as published from time to time" to avoid annual amendments.
• The 8.27% FY26 rate is high in historical context. FY21–FY22 sat at 4.52%; the rate doubled by FY24. Loans originated when rates were ~4.5% are now servicing at ~8.3% — substantially more interest cost on the same balance.
• Rate sensitivity is a live planning variable. When the underlying RBA rate is expected to fall, the timing of a Div 7A refinance to commercial finance changes — waiting for a lower benchmark may save material interest over a 7-year unsecured term.