claiming interest back

[neety]

Hi everyone,

I have a portfolio of 4 investment properties and have 'investment loans' from traditional lenders like ANZ, CBA etc.

My questions is, if I were to borrow funds from a family member, i.e. an agreed amount, over a period of time with an agreed interest rate for example: $500k on loan for 2 years at a rate of 6% interest only = $30,000 P.A. interest

am I able to claim the interest that I have paid back from the ATO - obviously dependant on my taxable income.

 

[Peter_Tersteeg]

Assuming you use the loan from the family member for investment purposes, I don't see why you couldn't claim the interest. You've just got to have evidence that you paid it and perhaps a written and signed agreement between you and the family member would also help.

 

[datto]

In my opinion, I would say you could, but you would have to have documentary evidence.

Also, the interest you pay to relatives, may be considered to be their income.

I would request a private binding ruling from the ATO.

 

[Terry_w]

Hi everyone,

I have a portfolio of 4 investment properties and have 'investment loans' from traditional lenders like ANZ, CBA etc.

My questions is, if I were to borrow funds from a family member, i.e. an agreed amount, over a period of time with an agreed interest rate for example: $500k on loan for 2 years at a rate of 6% interest only = $30,000 P.A. interest

am I able to claim the interest that I have paid back from the ATO - obviously dependant on my taxable income.

All the normal rules would apply. Just make sure it is a written agreement that will hold up in court.

Also consider that it will be income in the hands of your friend.

 

[neety]

Thanks very much Terryw.

 

[neety]

Thanks for the reply datto

 

[neety]

Thanks PT_Bear

 

[neety]

All the normal rules would apply. Just make sure it is a written agreement that will hold up in court.

Also consider that it will be income in the hands of your friend.

Hi Terry, would the rules change if the interest rate agreed upon was higher than 'standard' i.e. 10% + ? Would this have an impact on our the ATO treats its ?

 

[Terry_w]

Hi Terry, would the rules change if the interest rate agreed upon was higher than 'standard' i.e. 10% + ? Would this have an impact on our the ATO treats its ?

You would have to charge commercial rates. Is the loan going to be secured by a mortgage? If so then the going rate is around 6%. But this will also depend on LVR and a whole host of other things.

If it was unsecured like a credit card then rates around 20% may be reasonable.

Also, another thought, your friend may want to look into the National Consumer Credit Protection Act, to make sure they don't need a licence to lend money.

Your friend should seek legal and taxation advice.

Make sure wills are done too.

 

[Aaron_C]

Gee if a private lender who is a mate needs to get an ACL I think this country has just gone mad.

 

[Terry_w]

Gee if a private lender who is a mate needs to get an ACL I think this country has just gone mad.

I suspect a licence wouldn't be needed unless the person is in the business of providing credit, but best to check these things just in case.

 

[neety]

You would have to charge commercial rates. Is the loan going to be secured by a mortgage? If so then the going rate is around 6%. But this will also depend on LVR and a whole host of other things.

If it was unsecured like a credit card then rates around 20% may be reasonable.

Also, another thought, your friend may want to look into the National Consumer Credit Protection Act, to make sure they don't need a licence to lend money.

Your friend should seek legal and taxation advice.

Make sure wills are done too.

Yes it would be an unsecured loan agreement between the two parties. Thanks very much for the info !
Cheers

 

[Terry_w]

Yes it would be an unsecured loan agreement between the two parties. Thanks very much for the info !
Cheers

Just make sure you get legal advice first.

 

[Dean2012ad]

Neety,

I have done something similar where I borrowed a deposit for IP2 from my in-laws with a private ruling from the ATO stating that it was fine.

...It is the purpose of the borrowed funds that makes it deductible or not...

There does however need to be good documentation of the agreement and clear display of funds.

Note: It was a private ruling i.e. only applicable to me

 

[PaulGTaxAdviser]

Loan

You want to ensure a few things:
1. The loan has recourse. That is if you dont pay they will carve off your left nut. If loan is later forgiven etc the whole thing would be seen as a sham and ATO likely to see it as avoidance and you can expect amendments to deny all interest for whole period.
2. The amount the rele's finance needs to clearly trace to a deposit that clears bank loans. Do that and its refinance and no issues subject to point 1 only.
3. Commercial rate of interest. excessive amount may be non-deductible.
4. Actual interest payments demonstrate commerciality and recourse. Dont want ATO to argue if loan is capable of repayment it is "statute barred"...Look up google.
5. Written agreement
6. Interest receipient will have to declare interest and you may have to withhold interest and report to ATO (Call them)
7. Do they receive Centrelink ?
8. If lenders are on pensions etc the loan may affect their asset / incometests and be deemed. They should check with Centrelienk first.

Q : What happens after Year three when they ask you to refinance or you HAVE to refinance if they die ? Bank might refuse if its not on in good stead and supported by reliable docs.