Division 7A can turn an informal loan from your company to you, or to a related party, into a taxable dividend, and it becomes a real problem the moment a buyer’s due diligence team finds it.
Technically, it is a provision in the Income Tax Assessment Act 1936 (Cth) that treats certain payments, loans, and forgiven debts from a private company to a shareholder or associate as deemed unfranked dividends, taxable in the recipient’s hands.
It surfaces in M&A where the target company has provided loans or other benefits to the seller or related parties before the sale, and those loans have not been properly documented and serviced as compliant Division 7A loans. Buyer due diligence is thorough at finding these, and unresolved exposure usually ends up as an indemnity, a price adjustment, or a condition you must fix before completion.
What you as a seller should ask your tax adviser: are there any loans or payments between the company and you or related parties that have not been formally documented, and can they be remediated well before the sale process starts rather than discovered by the buyer during diligence.