If I borrow money and in turn lend this money to someone else, for example a trust, and claim the interest I recieve from the trust as income in my tax return, am I entitled to claim the interest I pay on my loan as a tax deduction?
For arguments sake lets say the interest rates are the same, or even slightly profitable, so the tax office have no reason to look at the situation as an attempt at avoiding tax…
I would recommend you put a formal loan agreement in place to demonstrate commerciality. But essentially yes as long as you declare interest income in your return then the interest will be deductible against that income.
I have a number of clients, particularly high net worth clients, who lend money to various entities to undertake a range of activities and lend that money at a commercial interest rate to the entity.
The entity borrowing the money needs to look at the funds for which the borrowed funds were put to determine deductibility from their perspective but essentially not a problem.
Thanks costymike.
When writing a formal loan agreement between myself and my trust, I gather the agreement is between myself and the trustee of the trust. So if the trustee is a company where I am the sole director, the signatures on the bottom of the page would both me mine. Can you see any issues with that, or is that sort of thing commonplace?
Cheers,
CarlYes where a company can execute a deed without using a common seal if where the company has a sole director who is also its sole company secretary, that person alone signs it. Refer to Corporations Act.
You will also be signing the loan agreement as lender as well in your individual capacity.
CM,
Do you need to have a eners licens for this sort of thing?
I seem to recall that you can not do ‘Vendors Finance unless you have a lenders license – one of the reasons I didn’t investiget this option more.Can you clarify this point, please.
Cheers
C@34Our greatest weakness lies in giving up. The most certain way to succeed is to always try something one more time.
– Thomas EdisonHi Mike
Can I add a question?
Would it be necessary to get the loan agreement stamped by the office of state revenue? (And pay duty?).
Thanks
Terryw
Discover Home Loans
Parramatta
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Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
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