Can I lend to myself?
- Thread starter scientist
- Start date
No you cannot. You cannot contract with yourself nor can you sue yourself - although some do argue with themselves.
Say I get a mortgage for a PPOR for $500,000 with offset account
I work and save and make $500,000, put it into the offset. I own that $500,000 in the offset, but I still owe the bank $500,000, and the bank charges me interest on the difference - $0, but that interest (if any) is not deductible because the loan was created for the purpose of PPOR. To make that debt deductible, I'd need to close the loan and apply for a new loan for investment purposes, even if I use the same PPOR as security.
Now what if I go and lend myself the $500,000, for the purpose of investing.
Before I had:
Assets:
PPOR
$500,000 in offset account
Debts:
$500,000 mortgage
I now have:
Assets:
PPOR
$500,000 in offset account
$500,000 loan to scientist
Debts:
$500,000 mortgage
$500,000 owed to scientist (deductible interest payments!)
I can then use that 500,000 to buy an IP without having to close the existing mortgage and effectively the interest payments on the original mortgage are tax deductible.
This only works if I can lend to myself.
A discretionary trust may be better.
So can I make a Pty Ltd with myself as sole shareholder (but not director - harder to get bank loans if a directorship shows up on credit file) and inject $500,000 cash as initial equity. Then lend that back to myself?
Ahhh I think ATO would be all over that because it looks like a tax dodge whereas I really just want to not have to close my PPOR mortgage so I can use it to invest.
Not doubting you, just genuinely curious - where is the authority for this?
Went through 5 years of law school and not once did any of the case law / textbooks etc deal with this minor detail.
Not necessarily - as long as the loan doesn't discharge, you could pay the offset funds into the loan, making the loan balance zero, then redraw to buy your IP.
Get tax advice, but I can't see why this wouldn't work. I'm sure someone will explain if I'm wrong
Logic? I don't know any legal authority.
Not necessarily - as long as the loan doesn't discharge, you could pay the offset funds into the loan, making the loan balance zero, then redraw to buy your IP.
Get tax advice, but I can't see why this wouldn't work. I'm sure someone will explain if I'm wrong
No, you are right Jess.
Based on what you are trying to achieve, this may be possible if you are investing through a trust. I have done similar things in the past for clients where they loan funds to their company / trust for the purpose of investing.
I am not 100% of the accounting side, but if you speak to a good accountant, they can find a way to make it work.
I don't get why you don't just apply for a new investment loan to replace the old O/O one. Is there problems getting it approved?
I am not 100% of the accounting side, but if you speak to a good accountant, they can find a way to make it work.
I don't get why you don't just apply for a new investment loan to replace the old O/O one. Is there problems getting it approved?
Not necessarily - as long as the loan doesn't discharge, you could pay the offset funds into the loan, making the loan balance zero, then redraw to buy your IP.
Get tax advice, but I can't see why this wouldn't work. I'm sure someone will explain if I'm wrong
Thanks - this is probably practically the easiest way!
Okay say you:
1. Sign a standard loan agreement with an accountant or solicitor, making it a proper transaction
2. Loan the funds to say a trust.
3. Trust gets deduction for the interest as you planned.
You have not considered the other side of the transaction..
If the trusts generates interest expense, on the other side of the equation YOU generate interest INCOME for loaning that money...
Sure there are additional strategies to add on to this one (for example personal situation, taxable income position of the trust/company etc) to get past this but I wanted you to consider this beforehand..
Cheers.
1. Sign a standard loan agreement with an accountant or solicitor, making it a proper transaction
2. Loan the funds to say a trust.
3. Trust gets deduction for the interest as you planned.
You have not considered the other side of the transaction..
If the trusts generates interest expense, on the other side of the equation YOU generate interest INCOME for loaning that money...
Sure there are additional strategies to add on to this one (for example personal situation, taxable income position of the trust/company etc) to get past this but I wanted you to consider this beforehand..
Cheers.
First sign of mental illness is talking to your self!!
which I seem to be doing more of!
1. Why is the lawyer or accountant signing a loan agreement? Are they a lender or a borrower?
3. Trust would only get a deduction if interest was charge and the money was used for investment or business purposes.
Above I mentioned a discretionary trust. In some instances a person could borrow from a related discretionary trust, use the funds for investment purposes and then later refinance this loan with a major bank and give the money back to the trust (pay off loan) and maintain deductibility of interest.
Hi
Hi,
Look at the overall picture and asses the following:
1) There is going to be legal cost to set up a entity properly - Don't just do it your self appoint a person who can do it correctly from the start.
2) You will have to pay ongoing ASIC fees "etc"
3) How much will your account cost you to lodge a return "etc" for a company / Trust.
4) Also look at the PROS and CONS in buying in a different entity such as capital gains implications "etc".
Hi,
Look at the overall picture and asses the following:
1) There is going to be legal cost to set up a entity properly - Don't just do it your self appoint a person who can do it correctly from the start.
2) You will have to pay ongoing ASIC fees "etc"
3) How much will your account cost you to lodge a return "etc" for a company / Trust.
4) Also look at the PROS and CONS in buying in a different entity such as capital gains implications "etc".
