Claiming Interest Query

[dodo_lurker]

Hi,

I have an IP in my name which I have obtained an additional seperate loan against in order to fund the deposit for IP2, which has been bought through my Family Trust.

Where do I claim the interest for this deposit ? in my own tax return (as the loan is in my name) or in the Trust tax return (as that?s the Property the deposit was used to buy).

Thanks!

 

[Paul@PFI]

Its likely not deductible at all. If you do claim it I would expect penalties. The ATO would argue its a scheme and apply its evasion rules which give no time limit to amend. In 10 years that could be a nasty problem.

1. You cannot claim a deduction.
2. Can the trust claim a deduction ?The trust used the money you borrowed ?
You gifted the money to the trust or loaned it ???? Which one ? What terms ? ....Now prove it.
3. If the trust passes rents to you to repay the loan (its your loan so a repayment is a trust distribution) then it may be treated as income on top of trust income. Trust distribution minutes etc need to be very clear on these matters.

That's what the ATO will say.

Get yourself some tax advice. DIY tax solutions don't work.

 

[Terry_w]

Yes you cannot claim the interest for money borrowed and settled or gifted to a trust.

The trust may be able to claim the interest you charge it if the loan is set up properly and on commercial terms.

 

[dodo_lurker]

When the Trust repays the loan, is this considered income from the Trust?

 

[Terry_w]

When the Trust repays the loan, is this considered income from the Trust?

Interest is an expense to the trust (if properly set up) but income to the lender.

 

[dodo_lurker]

Hi,

Sorry maybe I'm thinking about this the wrong way, but say this is the scenario:

I loan the Trust $100K with an agreement that the Trust will repay IO at 5%. (i understand that these interest repayments are income to me)

This goes on until the property is sold, and the Trust repays the initial $100K back. Is this $100K then treated as a Trust distribution to me and hence taxed?

 

[D.T.]

No dodo
Return of principle is exactly that. It wont count as income when you receive it and wont count as distribution when trust gives it out

 

[Paul@PFI]

Check who the trustee is too...I have seen trusts with Mr Y as Trustee. If Mr Y wants to lend to the trust he has to lend to himself...You cant contract with yourself. Whole concept fails at that point.

Another example of why a human trustee is short-sighted.