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Borrowing to put $ into offset account

Discussion in 'Accounting & Tax' started by goponcho, 1st Jul, 2015.

  1. goponcho

    goponcho Member

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    Hi,

    So i have a friend that has 100k sitting in a savings account getting him 2%.
    I have a PPOR with a IR of ~4%.
    I want him to transfer me his money and i give him back his money in x years adjusted for a return of 2% compounded annually.

    We both benefit from him lending me money
    1. He saves paying tax on a potential savings return
    2. I save paying extra interest in after tax dollars

    I know there is social issues but i understand and am okay with these. Understand there is a small risk of loss.

    ***I am more interested in the legal aspect and whether we are required to declare income etc if it is from a friend.

    Thanks guys
     
  2. D.T.

    D.T. Adelaide Property Manager Business Member

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    2% return is kinda bad for him, surely he can do better with his 100k?

    Also, he should declare that interest he's received to ATO.
     
  3. jaybean

    jaybean Well-Known Member

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    I've done this. But there needs to be a lot of trust obviously.
     
  4. Ace in the Hole

    Ace in the Hole Well-Known Member Premium Member

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    Big risk for your friend for no gain?
    Why would he do it?
     
  5. Hodor

    Hodor Well-Known Member

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    I would have thought he would have to declare it as income. Perhaps when it "matures" and you pay him the interest. Interested to hear from a tax guru on this.

    Such a bad deal for your friend. At the very least it would be fairer to split the "profit" of 2% so he does better than the bank rate.

    Either way he'd still be crazy. Worst deal ever.
     
  6. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    You should have a written loan agreement at the very least. He should also want security for his money because what if
    1. death
    2. family law separation
    3. incapacity
    4. bankruptcy

    happened to either of you. He could lose his money completely.

    If you are paying him interest then this would be income which he would need to declare.
     
    sumterrence likes this.
  7. Big Red

    Big Red Well-Known Member

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    Good idea actually, I want to be able to do this. The only thing is get it down legally.

    Lot of trust required.
     
  8. goponcho

    goponcho Member

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    The particular numbers were just for example - was more interest in the legality.

    Thanks all, understand there is potentially a large risk on his behalf
    Good points terry, thanks, sounds optimal to have a written agreement given the risks.

    What is the legal ruling regarding borrowing as a friend or as a income? Only if you charge interest?
    - and if we pay out the interest at the end as sort of capital gain, can he just pay it as such?
    - just for interests sake, too close to the line for me
     
  9. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    There is no specific 'legal ruling' when borrowing from friends. If it is a commercial situation interest may be deductible and income tax payable. If it is not commercial then perhaps no deductions - but still income tax.
     
  10. goponcho

    goponcho Member

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    Either way tax payable eh?
    Thanks Terry
     
  11. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    If you are paying interest to someone then this is income. If no interest then no income.