All Topics / Finance / Borrowing from parents

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  • Profile photo of allawahallawah
    Participant
    @allawah
    Join Date: 2011
    Post Count: 10

    My parents have lent us some money to help pay off our mortgage and now we're thinking of renting out our home so I was wondering if the interest I pay my parents can be tax deductable? If so how should I support this case? I think my parents still has receipts from banks about the money transfer from their account to our account, and if not can we ask them to write up an 'agreement' or something to say that they lent us money on this date at this interest rate etc so we can claim tax return based on this paperwork once we start renting out? Has anyone done similar thing before?

    Thanks in advance

    Rowena

    Profile photo of naughtyjnaughtyj
    Participant
    @naughtyj
    Join Date: 2011
    Post Count: 17

    This is just a guess, but I'd say you probably could.

    That being said you'd probably need an agreement that's signed off by a solicitor.  And, your parents would also need to declare the money they receive from you as taxable income (after all, it's income received from an investment).

    The only thing that you might also need to take into account is that if they loaned you the money when the place was your PPOR, why they weren't declaring the money they received from you as taxable income prior to your changing it over to an investment property?

    Just my 2c – all totally uninformed and completely non-legal in nature ;)

    Profile photo of Richard TaylorRichard Taylor
    Participant
    @qlds007
    Join Date: 2003
    Post Count: 12,018

    As long as the loan is fully documentated then no reason why it wouldnt be deductible.

    Course as mentioned your parents would need to declare the interest income the receive and this may have an effect on any present or future Centrelink benefits they may receive.

    On a side note personally i would not pay the loan off merely deposit the funds in your offset account.

    Cheers

    Yours in Finance

    Richard Taylor | Mortgage Broker helping investors build their wealth thru property
    http://www.mortgagecapitalaustralia.com.au
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    0-40 Properties in a decade with a unencumbered portfolio value in excess of $40M. Ask me for a copy of my API Interview.

    Profile photo of allawahallawah
    Participant
    @allawah
    Join Date: 2011
    Post Count: 10

    My parents are not Australian residents. Do they need to declare to ATO or their tax office in their country? I suppose they don't need to pay Australia tax?

    My parents gave me the money to help us with mortgage, not really to earn any interest from us. But if we convert our house to a rental property, then they don't see any reason why they shouldn't claim any interest from us.

    We weren't planning to invest our home which we planned to live in forever, until recently there're big changes in our family and we need to consider different options.

    Profile photo of TerrywTerryw
    Participant
    @terryw
    Join Date: 2001
    Post Count: 16,190

    Being non residents complicates things. You will probably have to withhold tax from your payments to them. The rate will depend on which country they are residents of.

    Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
    http://structuring.com.au/
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    Lawyer, Mortgage Broker and Tax Advisor (Aust wide) http://propertytaxbook.com.au/

    Profile photo of TerrywTerryw
    Participant
    @terryw
    Join Date: 2001
    Post Count: 16,190
    Terryw wrote:
    Being non residents complicates things. You will probably have to withhold tax from your payments to them. The rate will depend on which country they are residents of.

    According to this article,
    http://www.grantthornton.com.au/files/sharp12050106.pdf

    The rate of withholding tax is 10% regardless of which country the recipient is a resident of.

    Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
    http://structuring.com.au/
    Email Me

    Lawyer, Mortgage Broker and Tax Advisor (Aust wide) http://propertytaxbook.com.au/

    Profile photo of allawahallawah
    Participant
    @allawah
    Join Date: 2011
    Post Count: 10

    Thanks everyone! I'll probably call ATO to confirm. Believe they're the best people to ask.

    Profile photo of TerrywTerryw
    Participant
    @terryw
    Join Date: 2001
    Post Count: 16,190
    allawah wrote:
    Thanks everyone! I'll probably call ATO to confirm. Believe they're the best people to ask.

    Probably not the best, but a start anyway!

    Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
    http://structuring.com.au/
    Email Me

    Lawyer, Mortgage Broker and Tax Advisor (Aust wide) http://propertytaxbook.com.au/

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