Hoping someone might be able to offer some advice:
I am looking at purchasing an IP with a Discretionary Trust, and was wondering how I can claim interest on the deposit made if I lend the deposit to the trust from my existing loan.
ie, I would like to draw on the equity in a LOC on my PPOR for the deposit on the IP, but I’m not sure how to set this up so that the interest on the deposit is tax deductible. I know the interest on a PPOR is not tax deductible. My accountant advised me that if I was to lend the trust the deposit, I would have to declare the interest received from the trust as income, so would not benefit from this anyway.
However, I’ve been reading a bit of Dale GG’s Trust Magic, and he has an example on lending to a trust – I think it looks like you only have to declare income if a profit was made (eg your home loan is at 6% but you lend to the trust at 7% – you have to declare the 1% profit).
Can anyone confirm this or offer any advice?
Many Thanks,
Happy Dude
Even if you win the rat-race, you’re still a rat.Happy Dude,
welcome to the forum. You lend money to the trust – how else is it going to start investing? I believe that if your LOC is at 6%, you can charge the trust 6.25%. Why worry about the small amount of income on say a $30,000 loan to the trust (at 0.25% per annum = $75?) when you consider the benefits, e.g. a $200K property increasing in capital value at say 5% = $10K… Just a cost of doing business.
Establish a separate sub-a/c, e.g. LOC, from your home loan to provide the funds to the trust. This will make your accounting easier.
Read all of Trust Magic
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TerryTerence McMahon
HomeWin
FinanceHi
In myst situation, I have just lend money to the trust at the same interest rate that the LOC charges me. So they cancel each other out. ie the trust is paying me $6000 interest on a loan and I am paying $6000 interest to the bank – net positon is nil.
You should draw up a legal contract for this, in case the ATO comes looking.
Also be aware of the asset protection angles as well. eg If you are sued and your trust owes you money, then the creditors can call this loan in.
Terryw
Discover Home Loans
North Sydney
[email protected]Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Thanks very much for your help, dudes. Sorry I took a while to get back to you. Your help is much appreciated.
Regards,
Happy Dude
Even if you win the rat-race, you’re still a rat.Terry,
I was wondering where I can get such a contract?
Is there an example of such a contract somewhere that I can download? Or do I have to get lawyers involved?
I guess another option is to write it myself based on a home loan that I currently have, but would it be considered legal? [blink]
Any advice/ideas would be greatly appriciated. [evo]
Regards,
Orion
Originally posted by Terryw:You should draw up a legal contract for this, in case the ATO comes looking.
Orion
I would speak to your solicitor about this. You would probably want to get a proper document rather than one downloaded on the net.
Terryw
Discover Home Loans
North Sydney
[email protected]Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
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