All Topics / Legal & Accounting / Can I claim money borrowed from family to invest as a tax deduction?

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  • Profile photo of abundantone10922abundantone10922
    Participant
    @abundantone10922
    Join Date: 2003
    Post Count: 10

    If hubby lends me $’s to invest from his available line of credit, can I claim the interest as tax deductible if the loan agreement was drawn up and I purchased a property in my name? I am assuming that he would have to declare any interest payments as income but then can he claim the interest too? The loan would be paid back at his current interest rate (by me), so there’s no profit or loss on his side.

    I currently have a portion of my own line of credit to use but am not currently working, so arranging subsequent finance becomes a big issue. Existing properties are cashflow positive but lenders cannot see me as being able to service the loan.

    Is this legal and possible? Has anyone else done it? Would there be any issues with the tax department?

    Appreciate your advice and input.

    Profile photo of Richard TaylorRichard Taylor
    Participant
    @qlds007
    Join Date: 2003
    Post Count: 12,024

    Hi Abundantone

    Simple answer is Yes and there is no difference to taking out a Private loan or a loan from an established lending institution.

    A formal loan agreement would be drawn up setting out the Terms & Conditions of the advance and your would claim the interest paid as a deductible expense.

    In turn your hubby would declare this as income.

    Of course if the rate he charged you was the same as he was receiving then his Tax position would be neutral.

    For the purposes of the response i am assuming the funds would be used for investment.

    Cheers

    Yours in Finance

    Richard Taylor | Mortgage Broker helping investors build their wealth thru property
    http://www.mortgagecapitalaustralia.com.au
    Email Me

    100% Investment Finance now available on selected properties. Email us for further information.

    Profile photo of Jamie MooreJamie Moore
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    @jamie-m
    Join Date: 2010
    Post Count: 5,069

    As Richard said – shouldn’t be an issue given the purpose.

    Cheers

    Jamie

    Jamie Moore | Pass Go Home Loans Pty Ltd
    http://www.passgo.com.au
    Email Me | Phone Me

    Mortgage Broker assisting clients Australia wide Email: [email protected]

    Profile photo of abundantone10922abundantone10922
    Participant
    @abundantone10922
    Join Date: 2003
    Post Count: 10

    Thanks Richard and Jamie. Much appreciated. As it’s a LOC, legally he would be allowed to on-lend it, wouldn’t he? Don’t want to break any rules. :-) My understanding is that he can do what he likes with it. The only risk is if the bank called in the loan (LOC in this instance), but I imagine this would be an unlikely event. And yes, the purpose would be for investment (property).

    Profile photo of Richard TaylorRichard Taylor
    Participant
    @qlds007
    Join Date: 2003
    Post Count: 12,024

    There is no reason to think they would call in the loan if the account conduct was satisfactory and the property values were maintained.

    Nothing to stop him using the funds for any purpose at all.

    Cheers

    Yours in Finance

    Richard Taylor | Mortgage Broker helping investors build their wealth thru property
    http://www.mortgagecapitalaustralia.com.au
    Email Me

    100% Investment Finance now available on selected properties. Email us for further information.

    Profile photo of TerrywTerryw
    Participant
    @terryw
    Join Date: 2001
    Post Count: 16,213

    I draw up these sorts of loan agreements all the time. Would it be commercial for your husband to lend you unsecured at the same rate that he is paying? probably not, so I advise clients the lender should take security and make a small profit.

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

    Lawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://Terryw.com.au/

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