Can borrow funds from my business for PPOR?

Just wondering if anybody could offer any advice on this.

I have a few hundred thousand sitting in my company's business account doing nothing, and was wonding if my business can offer a loan to me (interest free would be good) to pay off my PPOR?

Or is there any other creative way to do it?


Thanks for any advice.
 
Consider using an offset account. This way the money doesn't need to actually enter your loan account.

Paying it into your home loan will be very effective esp if the business needs it back later on - the new borrowing would now be tax effective. But I am unsure as to the tax implications of drawing funds from the business to pay our personal debt - maybe be an income tax liability though there could be franking credits on it.
 
That is what I was looking at doing, just borrowing the money temporarily to put in the offset account to reduce the PPOR interest.

Wouldn't it just be like borrowing from another lender?
Can I write a loan to myself from the company for only 1% interest?

Thanks
 
Didn't they tighten the rules regarding lending to directors? i.e. you have to charge a commercial rate (which in this case wouldn't be deductible to you personally but would be income to the company)?
Alex
 
You need to watch out for Div7A. In short an unsecured loan needs to be repaid to the company P&I in 7 years, with interest at least meeting the statutory rate. A secured loan needs to be repaid P&I in 25 years.

So it can be done but basically you need to document it and put it on an equal footing to a normal commercial loan. Otherwise the Div 7A consequences are rather nasty, even after they (the ATO) have recently taken out some of the double penalty provisions.

EDIT: I am assuming that the company doesn''t at present owe you money.
 
Last edited:
I am assuming it is a company. You would need to charge a commercial rate so as to not do disinterest to the company. Even so, you could charge the current RBA rate and probably save 1% on the loan personally?

Then the company would have to pay tax on the interest though, which would be 1.95% of the 6.5% rate (using current RBA rate) so wouldnt be worth it.
 
I am assuming it is a company. You would need to charge a commercial rate so as to not do disinterest to the company. Even so, you could charge the current RBA rate and probably save 1% on the loan personally?

Then the company would have to pay tax on the interest though, which would be 1.95% of the 6.5% rate (using current RBA rate) so wouldnt be worth it.


Oops...I automatically assumed it was a company too. If its a trust then it can get a bit more complicated. If you're a sole trader then happy days. If a partnership then happy days with a twist.

The minimum Div7A interest rate is currently 8.05% (TD 2007/23)
 
We have been advised we can do this but it does need to be at a commercial rate and documented. Otherwise I think it is treated as a dividend without the Imputation Credit! Ouch!
 
So it seems like it is not worth the trouble then.

Is the only other way to get the money out of my company by paying myself and wife a bigger salary and just pay personal income tax on it?

Can you pay yourself tax free bonuses?


Any other way's to take profits from the company apart from taking payment for wages/salary? Main goal right now is to pay down PPOR debt.

Thanks for the help.
 
that is pretty much it.

maybe have a look at some FBT ideas?

the best way to get money out of a company is when you sell it, as you save 50% on CGT.
 
It can be an effecitve way on occasion of getting cash for borrowing but as you can see the % rate is generally not the best and you always have the ATO sniffing around.

Ways of getting money out of a company - that old chestnut! (That's why I lerve trusts!)

1. If you have a franking account and retained profits, then a dividend payment may not cost you much (more) in the way of tax
2. Additonal wages/directors fees are a no brainer, but that means more in PAYG withholding and possibly workers comp isurance and payroll tax.
3. Perhaps look at the use of a service entity, such as a service trust to spread the income. This too is under increased ATO scrutiny.
There is another way with the use of Limited Partnerships but the ATO is cracking down on this and recently issued an alert. Anyway the tax solicitors who'll set them up charge a small fortune in fees.
 
What MattR said about trusts I totally agree with. Div 7A and the cash flow implications are big reasons why investors should avoid trading in companies.

There are really no hard and fast rules on how to get money out of companies, otherwise Div 7A would be a toothless section. You should also be aware that while paying down loan principals is great from an equity perspective, it is a killer from a tax perspective. Paying down the principle portion of a loan from profits = BIG tax bill.

You should attempt to see if you can pay yourself dividends or salaries to arrive at a taxable income of $75k to those that you can arrange it for. This puts you at the threshold of jumping from the 30% to the 40% tax bracket. MattR spoke about this.

There is a little section of Div 7A that might be worth mentioning - Div 7A is only triggered if you hold an outstanding loan at the end of the year towards the company. You can actually draw the money out into an offset account, repay it before the end of the year and then draw it out again. Remember that there will be FBT consequences if you don't charge an adequate interest rate and that you cannot under the anti avoidance provision lend yourself back the amount you previously took out or more in the new financial year.

But Blackspider, people trading in companies who like taking advantage of the 30% tax rate usually get stuck in your position. Speak to your accountant about the costs of transferring over to a trust with corporate beneficiary and corporate trustee. It will cost a little to set up, but save you so much more in tax savings and stress in the long term.
 
Speak to your accountant about the costs of transferring over to a trust with corporate beneficiary and corporate trustee. It will cost a little to set up, but save you so much more in tax savings and stress in the long term.
Don't you then have the same problems with getting the money out of the corporate beneficiary?

Cheers
 
Wow, thanks for all the helpful replies.

Something for me to look into with more detail as I know nothing about the subject.
My business/company is not property related, just in case some of the replies were referring to reducing property related profits.

Thanks again.
 
You should attempt to see if you can pay yourself dividends or salaries to arrive at a taxable income of $75k to those that you can arrange it for.
If it's all fully-franked dividends, and that's the person's only income, then they can receive $129,000 in gross dividends ($90,300 + $38,700 in franking credits) and still pay no extra tax. That's because the company rate is a flat rate, and personal income tax on $129,000 is also $38,700, even though $54,000 of that is being taxed at 40%.

Of course if they received less than that, then they could get a rebate for the excess franking credits.

Welcome said:
Don't you then have the same problems with getting the money out of the corporate beneficiary?
I think so. Still, each trust beneficiary would have to be on more than $129K a year for it to be worthwhile distributing to a company.

Cheers,
GP
 
Pls correct me if I'm wrong, (and this may be slightly off topic) but why can't your company lend you the cash, with a clause requiring repayment made in full, plus say 10% capital (ie to make the deal commercially worthwhile in the eyes of the ATO.)

You take the cash and pay down your ppor mortgage.

in 1 yr you borrow the cash from your ppor (LOC, etc) and repay the loan plus the interest.

This may not be the result your after, but at least will turn your ppor debt into a deductible investement loan.


rgds
ShaunW
 
Pls correct me if I'm wrong, (and this may be slightly off topic) but why can't your company lend you the cash, with a clause requiring repayment made in full, plus say 10% capital (ie to make the deal commercially worthwhile in the eyes of the ATO.)

That would be called interest.

You take the cash and pay down your ppor mortgage.

in 1 yr you borrow the cash from your ppor (LOC, etc) and repay the loan plus the interest.

This may not be the result your after, but at least will turn your ppor debt into a deductible investement loan.

The original loan from the company would not be deductible to you personally because it wasn't used for income producing purposes (since it was used to pay off PPOR debt). Similarly, borrowing to pay off a non-deductible debt means that new borrowing is not deductible either.

Just becuase you borrow from your company doesn't make it an investment loan.
Alex
 
we have similar problem while ago. so what was done was gift from company to trust. company then have no distributable surplus. dont know what it means but tax lawyer say good. then liquidate company. no tax and no div 7a problems. all because of this distributable surplus problem they fix. qc sign off as well but he say ato not like maybe go to court but law says ok. aggressive but ok. we wait if we go to court and test it.
 
Hi secret squirrel,

I don't like go to court too often, so maybe not use that strategy.
Good luck if it is work for you.

I probably will do a legal contract loan from the business next year to fund a duplex development, which the bank wouldn't lend to do construction.

Thanks
 
Back
Top