Can I Borrow Money From My Company To Buy A House?

If you run your business through a company, it’s normal to look at the cash sitting in the company bank account and wonder whether you can use it to help fund a personal goal - like buying a home.

And yes, in many cases, a director or shareholder can borrow money from their company to buy a house.

But it’s not as simple as transferring money out and “sorting it out later”. A loan from your company can trigger serious tax issues (particularly under Division 7A for private companies), create governance risks under the Corporations Act, and even expose directors to personal liability if the company’s financial position isn’t managed properly.

This article is general information only and isn’t tax advice. Division 7A is technical and fact-specific, so you should speak with your accountant or tax adviser before you draw down funds or document the arrangement.

Below, we’ll walk you through the key legal and practical points small business owners should consider before borrowing from their company to buy a house - and what “doing it properly” usually looks like in Australia.

Can A Director Or Shareholder Borrow Money From Their Company?

Generally, a company can lend money to someone - including its own director or shareholder - as long as the loan is properly authorised and documented, and it doesn’t breach laws or director duties.

In practice, borrowing money from your company often happens in situations like:

• you’re a director and shareholder of a small company and you need funds for a house deposit;
• you’ve paid personal expenses through the company historically and want to “clean it up” as a formal loan;
• the company has surplus cash and you plan to repay it over time.

However, it’s important to remember one core principle:

The money in the company bank account is the company’s money - not your personal money - even if you own 100% of the shares.

That’s why a loan needs to be treated like a real transaction between two separate legal parties (the company and you).

If you want background on how these arrangements are commonly structured and recorded, it’s worth understanding what a director loan is and how it typically works in Australian small businesses.

What Are The Biggest Risks If You Borrow From Your Company To Buy A House?

The biggest risks usually fall into three buckets: tax risk, compliance risk, and relationship risk (particularly if there are multiple shareholders).

1. Tax Risk (Including Division 7A)

In Australia, loans from private companies to shareholders (and their associates) can be treated as unfranked dividends for tax purposes unless they meet certain requirements.

This is where people get caught out.

Even if you fully intend to repay the money, the ATO can treat the amount as a dividend if it isn’t structured correctly - which can lead to unexpected personal tax liabilities.

This is particularly relevant for small businesses where the director is also a shareholder (or the loan is to someone connected to a shareholder).

Division 7A also has strict timing and documentation requirements (for example, around when a complying loan agreement must be in place and how repayments are treated), so it’s important to get tax advice early and make sure your legal documents and accounting treatment match.

2. Corporations Act And Director Duties

Directors have legal duties to act in the best interests of the company and to avoid improper use of company position.

Even where the company and the director are closely connected, the director must still ensure the company is not disadvantaged by the loan.

This becomes even more important if:

• the loan is interest-free or “repay when you can”;
• the loan is unsecured and there’s no clear repayment plan;
• the company is under financial pressure or has creditors;
• there are other shareholders who may question whether the company is being run fairly.

There can also be specific Corporations Act issues where a loan is a “related party” transaction. In some cases, a loan to a director (or their related entity) may be treated as giving a related party a “financial benefit”, which can trigger the related party rules (including the need for member/shareholder approval) unless an exception applies (for example, where the terms are arm’s length). Whether these rules apply depends on factors like the type of company and the exact structure of the transaction, so it’s worth getting legal advice if you’re unsure.

3. Solvency And Insolvent Trading Exposure

If borrowing money from the company contributes to cashflow issues, it can create a solvency risk.

If a director allows the company to incur debts when it can’t pay them as and when they fall due, the director can face insolvent trading consequences.

It’s common for companies to document financial decisions (especially significant ones like director loans) alongside governance steps such as a solvency assessment. If your company is preparing formal records in this area, a solvency resolution can be part of demonstrating appropriate oversight.

How Do You Borrow Money From Your Company “The Right Way”?

There isn’t one single “correct” structure that fits every business, but there are some practical steps that almost always apply when a director/shareholder borrows money from their company to buy a house.

Step 1: Check Whether The Company Can Make The Loan

Before looking at documents, you should assess whether the company can actually afford to lend the money without harming operations.

Key questions to ask include:

• Will lending this amount impact wages, supplier payments, rent, or tax obligations?
• Is the company currently profitable, or is it relying on tight cashflow?
• Does the company have existing loan obligations or security arrangements that restrict lending?
• Will any shareholders or stakeholders object?

This is also where you’ll want your accountant involved early, because the tax treatment (and the company’s accounting entries) matter just as much as the legal form.

Step 2: Get Proper Approval (And Document It)

Even in a small “family” company, you should treat this like a real company decision.

Depending on your structure, approval might come from:

• the board of directors (directors’ resolution);
• shareholders (shareholders’ resolution), particularly if there are conflicts of interest or multiple owners;
• rules set out in the company’s constitution or shareholder arrangements.

If there’s a conflict (for example, the borrower is also a director making the decision), the company should follow proper conflict management and approval processes. And if the loan is a related party financial benefit, member approval may be required unless an exception applies (such as the deal being on arm’s length terms).

If your business has a Company Constitution, it may include rules about decision-making, conflicts, and how directors can approve related-party transactions.

If there are multiple owners, a Shareholders Agreement can also be crucial, because it often deals with governance, financial decisions, and what happens if one shareholder receives a benefit that others don’t.

Step 3: Put A Written Loan Agreement In Place

If you’re borrowing money from your company to buy a house, you should almost always have a written loan agreement.

This is not just a “nice to have”. A proper loan agreement helps you:

• prove the money is a loan (not wages, not a dividend, not a distribution);
• set clear repayment terms (and avoid future disputes);
• set interest (if applicable);
• clarify what happens if you can’t repay on time;
• support Division 7A compliance (where relevant).

From a practical small business perspective, if the amount is significant (as it often is when buying property), it’s worth having a tailored Loan Agreement that matches what you and the company are actually doing, rather than relying on a generic template.

Step 4: Consider Security (Especially If The Loan Is Large)

Many business owners assume that because they “own the company”, the company doesn’t need to protect itself.

But from a legal and governance perspective, the company should act like a prudent lender - particularly if there are creditors, other shareholders, or a risk the company could be sold in future.

For larger loans, it may be appropriate for the company to require security, such as a charge or mortgage-related security arrangement (this depends heavily on your circumstances and what your bank will allow if you’re also getting a home loan).

Where security is involved, a secured loan agreement may be more appropriate than an unsecured loan arrangement.

Step 5: Execute The Documents Properly

Execution matters. If documents aren’t signed correctly, you can end up with uncertainty about whether the loan is enforceable - which can be a problem not just legally, but also for accounting and tax reporting.

Many companies execute documents under section 127 of the Corporations Act (for example, with two directors, or a director and company secretary, or in some cases a sole director/secretary structure). If you’re not sure what “proper execution” looks like, it’s worth understanding signing documents under section 127.

What’s The Difference Between A Loan, A Dividend, And Wages?

When you take money out of your company, it generally needs to fall into a legally and tax-recognised category.

Three common categories are:

• Loan: you must repay it (usually under set terms).
• Dividend: a distribution to shareholders that must meet Corporations Act requirements (including the statutory tests around the company’s assets, liabilities and ability to pay its debts), and may have additional tax considerations.
• Wages/salary: payment for work performed as an employee (which generally involves PAYG withholding and superannuation obligations).

If you’re a director-shareholder, it’s easy for these concepts to blur in day-to-day life - especially in early-stage businesses.

But the legal and tax consequences can be very different.

Why It Matters (Especially For Buying A House)

When you borrow money from your company to buy a house, the amount is often large, and there’s usually a bank involved. You may be asked to explain where your deposit came from, and your accountant may need to account for the transaction in a way that matches the documentation.

If the “loan” isn’t clearly a loan, you risk:

• ATO scrutiny and unexpected tax treatment;
• company records that don’t match what actually happened;
• future disputes with other shareholders (if any);
• issues when selling the business or bringing in investors.

If you’re considering whether to pay out funds as dividends rather than taking a loan, it’s important to check the Corporations Act requirements for declaring and paying dividends and to make sure the company remains solvent after any distribution. This also often links to tax concepts like distributable surplus in certain contexts.

What If There Are Multiple Directors Or Shareholders?

This is where borrowing money from your company can become less of a “tax and paperwork” issue and more of a relationship and governance issue.

If there are other directors or shareholders, taking a personal loan from the company can raise concerns such as:

• Is the loan on commercial terms, or is it effectively a private benefit?
• Will other owners be offered the same opportunity?
• Was the decision properly approved, or did one director make the call unilaterally?
• What happens if the borrowing director can’t repay?

Even if everyone is aligned today, documenting the arrangement helps prevent misunderstandings later - especially if someone exits the business, the company is sold, or the relationship changes.

In many small businesses, this is exactly why a Shareholders Agreement (and clear board/shareholder resolutions) is so valuable - it creates agreed rules about how decisions like this are made and what approvals are required.

Key Takeaways

• You can often borrow money from your company to buy a house, but you need to treat it as a real loan between two separate legal entities (you and the company).
• The biggest risks are usually tax issues (including Division 7A), director duties and governance (including potential related party approval requirements), and solvency/insolvent trading exposure if the company can’t afford the loan.
• To do it properly, you’ll typically need clear approvals, a written loan agreement, and accurate accounting/tax reporting (with your accountant or tax adviser involved early).
• If the loan is substantial, you may need to consider security and ensure the documents are executed correctly (including under section 127 where relevant).
• If there are multiple shareholders, documenting the process and ensuring fairness can help avoid disputes and protect the business long term.

If you’d like legal help documenting a director/shareholder loan or reviewing your company’s governance around payments to owners, you can reach us at 1800 730 617 or team@sprintlaw.com.au for a free, no-obligations chat.