Some banks are advising customers with business accounts to transfer excess cash to pay down the business owner's home loan. While it might sound like common sense to use the excess cash in your business, there are significant potential problems for business owners who do this.
Money in your business account is the money of the business, not your personal cash. You can't just take it out and move it around at will, even if it is your business.
If you run a company, there are a set of tax rules called Division 7A that apply. Division 7A is a particularly tricky piece of tax law designed to prevent business owners accessing funds that have not been taxed at their individual tax rate – only the corporate rate. While these amounts are often debited to the shareholder's loan account in the financial statements, Division 7A ensures that any payments, loans, or forgiven debts are treated as if they were dividends for tax purposes unless there is a valid shareholder loan agreement in place.