Another obscure finance q

Discussion in 'Loans & Mortgage Brokers' started by Glorion, 31st Aug, 2015.

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  1. Glorion

    Glorion Well-Known Member

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    Hi guys, I have another question pertaining to finance. I'm going to have my loan set up so that it is 100% offset (for a ppor). My parents own an IP, and have their ppor fully paid off. Is there any reason not to take the funds out of their IP offset and use them for my own offset? Paying my parents the interest as if they were the bank. This would allow them to be more negatively geared, whilst also providing a tax free income stream from myself. Is this right or do I have this skewed?
     
    Glorion, 31st Aug, 2015
    #1
  2. 158

    158 Well-Known Member

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    It was all good until you got to the part 'tax free income....'

    Your parents will have to declare this income (the interest earned) on their tax return if it is a commercial loan from them to you.

    pinkboy
     
    158, 31st Aug, 2015
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  3. Glorion

    Glorion Well-Known Member

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    Perfect! Thank you. I assumed as much, curious as to know how the ATO will work out that I'm not wiring money to my wonderful parents based on the fact that they raised me and I feel I owe them!
     
    Glorion, 31st Aug, 2015
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  4. Harry Nguyen

    Harry Nguyen Well-Known Member

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    Your parent raised u?
    Not sure if our gov agree to that ;)
     
    Harry Nguyen, 1st Sep, 2015
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  5. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    Think what are the implications if either of you
    1. die
    2. divorce
    3. lose capacity
    4. become bankrupt.

    A commercial loan agreement should be considered - interest could be at 0% though but it should be a legally enforceable agreement.
     
    Terry_w, 1st Sep, 2015
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  6. tobe

    tobe Well-Known Member

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    Check with your accountant, but I reckon their loan to you isn't tax deductible for them. Its only tax deductible if the purpose of the loan is to produce an assessable income.
     
    tobe, 1st Sep, 2015
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  7. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    Nope, it would be deductible in this case as they are proposing to take cash form the offset - deductible assuming the funds in the offset are not borrowed.
     
    Terry_w, 1st Sep, 2015
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  8. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    It would be tax free income stream to Glorion in the form of reduced interest. Parents would have to pay tax on any interest received, but there doesn't have to be interest paid, that is up to the parties.
     
    Terry_w, 1st Sep, 2015
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  9. Glorion

    Glorion Well-Known Member

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    Cheers Terry, as always, your advice is both sound and prudent.
     
    Glorion, 1st Sep, 2015
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  10. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    Thanks - got a legal tip coming up on this topic soon too.
     
    Terry_w, 1st Sep, 2015
    #10
  11. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    Terry_w, 2nd Sep, 2015
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