fxdaemonParticipant@fxdaemonJoin Date: 2013Post Count: 114
When borrowing money to invest in a private unit trust set up and assuming
that only 80% of the investors funds will be used towards settling
on a property deal with remaining funds be kept for ongoing cashflow
Is the investor’s borrowed fund full interest charges be deductible or only
Unit trusts raises $1 million from 3 investors. The trusts then uses $800K
as desposit and other closing costs to purchase an IP at $2.96 million,
so the number looks like following:
– Trust equity funds raised from unit investors: $1 million
– Trust purchases IP at: $2.96m
– Trust borrow 80% from bank: $2.37 million
– Trust uses $800K from equity raised for 20% deposit and 7% for all other
– Trust has $200K raised equity un-invested but used as cashflow buffer
– Investor 1 invested borrowed fund of $500K into the unit trust at interest
rate of 10% p.a so total interest p.a = $50K.
However, since only $800K is invested by the trust in actual income generating
asset, does that translate to Investor 1 can only claim pro rata deduction of
the $50K interest?
FXDTerrywParticipant@terrywJoin Date: 2001Post Count: 16,190
You are confusing a few issues here.
The unit holders could potentially borrow to acquire units in the trust. If it is a fixed trust they could claim the interest on borrowings used to acquire these units. Claim the interest against their personal income.
The trustee could borrow to acquire a property and any interest on such a loan would generally be a trust expense.
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