A director's loan account records money owed between you and your company. If the company owes you, that is a credit balance and is generally harmless. If you owe the company — an overdrawn or debit balance — SARS can treat the benefit of that interest-free or low-interest loan as a deemed dividend under section 64E, attracting 20% dividends tax. The official rate for measuring the benefit is 7.75% per annum from 1 December 2025.
Almost every small company in South Africa has one, and most owners have never been told what it is. It is created every time money moves between you and the business without being properly classified as salary, dividend, expense reimbursement or repayment.
TL;DR
Credit balance — the company owes you. Generally fine.
Debit balance — you owe the company. This is where the tax risk sits.
A low-interest or interest-free loan to a shareholder can be a deemed dividend under section 64E, taxed at 20%.
The official rate is 7.75% p.a. from 1 December 2025.
Balances get cleared by charging interest, declaring a dividend, paying a bonus, or repaying cash.
Directors' loans also raise Companies Act issues around financial assistance.
How a loan account is created
Every time money crosses between you and your company, it has to be classified as one of five things:
| Transaction | Correct classification |
|---|---|
| Company pays you a salary through payroll | Remuneration — PAYE deducted, IRP5 issued |
| Company declares and pays a dividend | Dividend — 20% dividends tax withheld, DTR02 filed |
| Company reimburses a business expense you paid personally | Expense reimbursement |
| You lend the company money | Credit loan account |
| Company pays you money that is none of the above | Debit loan account |
That last row is where most balances come from. A transfer described as "drawings", a personal purchase on the company card, a family expense paid from the business account — none of them are salary, none are dividends, so all of them sit as a loan.
The balance builds quietly. R15,000 a month of unclassified drawings is R180,000 on the loan account after a year.
Credit balance: the company owes you
This is common and usually straightforward. Founders fund the business early on, pay supplier invoices personally, or leave salary undrawn.
Repayment is not taxable. Getting your own capital back is not income, and no PAYE or dividends tax applies to the repayment of a genuine loan.
You may charge interest — but interest received is taxable in your hands, and there are limitation rules on the company's deduction. For most small companies, an interest-free shareholder loan is the simplest arrangement.
Two things worth doing:
Document it. A written loan agreement setting out the amount, terms and whether interest is charged. It costs nothing and settles the question if SARS asks whether repayments are really disguised distributions.
Keep it clean. A single account with clear entries beats a running mixture of personal and business transactions.
Debit balance: you owe the company
This is the one with consequences.
The deemed dividend under section 64E
Where a company provides a loan, advance or other financial assistance to a shareholder or a person connected to a shareholder, and the loan carries no interest or interest below the official rate, the shortfall can be treated as a deemed dividend in specie.
Dividends tax at 20% applies to that deemed amount, and it is the company that is liable to pay it.
How the deemed amount is calculated
Broadly, the difference between interest at the official rate and the interest actually charged.
Official rate: 7.75% per annum from 1 December 2025.
Worked example. Your loan account is overdrawn by R500,000 for a full year, with no interest charged.
| Amount | |
|---|---|
| Loan balance | R500,000 |
| Interest at the official rate, 7.75% | R38,750 |
| Interest actually charged | R0 |
| Deemed dividend | R38,750 |
| Dividends tax at 20% | R7,750 |
R7,750 a year, payable by the company, for the privilege of having R500,000 sitting on your loan account.
It is not just directors
The rules reach connected persons — a spouse, a family member, or a trust connected to a shareholder. A loan to your spouse from your company falls within the same net.
How to clear a debit loan account
Four routes. Each has a cost, and the cheapest depends on your circumstances.
1. Charge interest at the official rate
The simplest fix. If the company charges interest at or above the official rate, there is no deemed dividend.
The catch: the interest is income in the company's hands, taxable at 27%. And you must actually charge it — a note in the file saying interest is charged, with nothing posted, does not count.
R500,000 at 7.75% is R38,750 of company income, taxed at 27% = R10,463. That is more than the R7,750 dividends tax, so charging interest is not automatically cheaper. Run both.
2. Declare a dividend
Declare a dividend equal to the loan balance and set it off against the loan.
Cost: 20% dividends tax on the full dividend, not just the deemed interest. On a R500,000 loan that is R100,000 — but it clears the balance permanently rather than paying a smaller amount every year indefinitely.
Requires: distributable profits and the solvency and liquidity test being satisfied.
3. Pay a bonus through payroll
Process a bonus and set it against the loan.
Cost: PAYE at your marginal rate, up to 45%, plus UIF. But the bonus is deductible in the company, which the dividend is not.
For an owner whose marginal rate is below 41.6%, this is often the cheapest clearing route.
4. Repay it in cash
Cleanest, and free of tax consequences. Requires the cash.
Which is cheapest?
| Your position | Usually cheapest |
|---|---|
| Small balance, expect to repay soon | Charge interest, repay it |
| Large balance, marginal rate under 41.6% | Bonus through payroll |
| Large balance, marginal rate above 41.6% | Dividend |
| Company has no distributable profits | Bonus or repayment — a dividend is not available |
| You have the cash personally | Repay |
The Companies Act side
There is a second layer that has nothing to do with tax.
Section 45 of the Companies Act regulates financial assistance to directors, prescribed officers and related companies. Broadly, such assistance requires:
Authorisation by the Memorandum of Incorporation
A special resolution of shareholders, taken within the previous two years
The board being satisfied the company satisfies the solvency and liquidity test
The terms being fair and reasonable to the company
Financial assistance given without meeting these requirements is void, and directors who were present and failed to vote against it can be personally liable for any resulting loss.
Most small companies ignore this entirely. It rarely surfaces — until there is a dispute between shareholders, a liquidation, or a due diligence in a sale process, at which point it surfaces loudly.
Why it matters beyond the tax
Your financial statements show it. A large director's loan is visible on the balance sheet to anyone who reads it.
Banks look at it. A significant debit loan account signals to a credit assessor that the owner is extracting cash informally, and it reduces the company's net asset position.
Buyers price it. In a sale, a debit loan account has to be settled at completion, and its existence invites questions about how the business has been run.
Auditors and reviewers report on it. Related party balances are a disclosure item, and a growing unexplained balance attracts scrutiny.
Preventing the problem
Decide how you take money, and take it that way. A monthly salary through payroll, dividends declared formally when you want more, and expenses reimbursed against receipts. Three clear channels, no residue.
Stop using the company card for personal spending. This is the single largest source of debit balances. If it happens by accident, repay it immediately rather than letting it sit.
Review the balance quarterly, not at year-end. A R40,000 balance is easy to fix; a R600,000 balance is a planning exercise.
Take dividends properly. Board resolution, solvency and liquidity test, 20% withheld, DTR02 filed. See salary or dividends: how should a Pty Ltd owner pay themselves.
Frequently asked questions
What is a director's loan account? A record of money owed between a director or shareholder and the company. A credit balance means the company owes you; a debit balance means you owe the company. It is created whenever money moves between you and the business without being classified as salary, dividend, expense reimbursement or loan repayment.
Is a director's loan taxable in South Africa? Repaying a loan you made to the company is not taxable. Where the company has lent money to you at no interest or below the official rate, the benefit can be treated as a deemed dividend under section 64E, attracting 20% dividends tax payable by the company.
What is the official rate of interest for director's loans? 7.75% per annum from 1 December 2025. It is the benchmark used to measure the benefit of an interest-free or low-interest loan for both fringe benefit and deemed dividend purposes.
How do I clear an overdrawn loan account? Four routes: charge interest at or above the official rate, declare a dividend and set it off, pay a bonus through payroll and set it off, or repay it in cash. The cheapest depends on your marginal tax rate and whether the company has distributable profits.
Can I just take drawings from my company? You can move the money, but it will be recorded as a loan rather than a salary or dividend. That creates a debit loan account with potential deemed dividend consequences, and it does not avoid tax — it defers and complicates it.
Does the deemed dividend apply to loans to my spouse? Yes. The rules extend to persons connected to a shareholder, which includes a spouse, certain family members and connected trusts.
What are the Companies Act requirements for a loan to a director? Section 45 requires that financial assistance to a director be authorised by the MOI, approved by special resolution within the previous two years, satisfy the solvency and liquidity test, and be on terms fair and reasonable to the company. Assistance given without these is void, and directors can be personally liable for resulting losses.
Does a credit loan account cause problems? Generally not. Repayment of genuine capital you lent the company is not taxable. Document it with a written loan agreement so there is no question about whether repayments are disguised distributions.
Find out what your balance actually is
Most owners are surprised by the number. A loan account that nobody has looked at for three years is rarely small, and clearing a large balance is a planning exercise best done with notice rather than in the week before year-end.
Smartbook tracks the loan account monthly, flags it before it becomes a problem, and models the cheapest clearing route against your own marginal rate and the company's profit position.
Last reviewed: 26 July 2026. Written by the Smartbook team — SAIPA and SAICA accredited, SARS registered tax practitioners. Section 64E and section 45 both involve fact-specific analysis — take advice before implementing a clearing strategy. General guidance, not advice on your circumstances.
Primary sources: SARS — Comprehensive Guide to Dividends Tax · SARS — Budget 2026 Frequently Asked Questions · SARS — Income Tax · Companies Act 71 of 2008