Borrowing from relatives in another country

Discussion in 'Loans & Mortgage Brokers' started by lightbringer, 12th Mar, 2020.

Join Australia's most dynamic and respected property investment community
  1. lightbringer

    lightbringer Active Member

    Joined:
    27th May, 2019
    Posts:
    35
    Location:
    Melbourne
    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
     
  2. Terry_w

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

    Joined:
    9th Jun, 2006
    Posts:
    30,804
    Location:
    Australia wide
    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.
     
  3. Paul@PFI

    [email protected] Tax Accounting + SMSF Business Plus Member

    Joined:
    18th Jun, 2015
    Posts:
    15,067
    Location:
    Sydney
    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 ?