Borrowing from relatives in another country

Hi,

I am thinking of borrowing money from my relatives who are not in Australia, with a specified interest rate (assuming it's interest only).
My questions are:
- What are the tax implications on the loan, can I deduct the interest paid?
- Is it possible to create a separate bank account to pay interest in there monthly and transfer back to them once or twice a year?
- What kind of documents that I need to keep in case ATO knocks on the door.

TIA.

Regards,
Tom

 

Get some legal and tax advice, especially if wanting to deduct the interest. I have written a tax tip on this here on the forum.

 

The most problematic element is the withholding tax requirement. Failing to comply renders the expense non-deductible too. As the payer you would need to withhold the tax and remit to the ATO. Div11A ITAA36 and the country of residency for the person being paid will impact this

Investment income and royalties paid to foreign residents

The use of the borrowing would also need to be demonstrated for interest to be deductible. eg Dipak in India remits $10K to his Brother in Australia who drew $10K from his savings account the day prior to invest. None of this interest would be deductible. So Dipak then invests the $10K that was credited and buys shares that dont pay a dividend. That is also not deductible. T

The impacts of the exchange rate may also pose a issue Is the loan and its interest to be designated in foreign or AU currency ?