Business income in home loan offset account

My friend currently works as a consultant and is operating under his ACN. He invoices his client monthly and collects GST. This is then paid to his Company Bank account by his client.

Can he move the money from his Company bank account to his personal home loan offset account to save on interest?

 

You are conflating a business with a company.
A company is a separate legal entity and its money is its own, separate from its directors and shareholders. If he puts company money into his personal account there are a number of legal and tax issues.

Under Division 7A ITAA36 unless there is a complying loan agreement at the benchmark rate, which is about 5.25%, he will be taxed on the money as if it is a dividend.

There is a general misconception that it can be repaid on 29th of June every year and reborrowed 1 July, interest free. But this is not the case.

 

Thanks Terry, I have corrected the OP to reflect company.

If this was operated as a sole trader, can that money be moved to home loan offset account without the legal and tax issues you mentioned?

 

a sole trader is not a separate entity - it is the individual that is trading and earning the money and that money can be put anywhere they want.

 

Yes he can. However it might be that the income is personal services so the company structure is ignored.

Or it might be that he has to repay the money back once he lodged a tax return and stop doing it.

Quite a few different tax outcomes in addition to the above.

So can he? Yes. Should he? Don’t know.

 

with interest rates so low many business owners are finding it better to use excess cash reserves to grow the business where they get a much better return on investment than 3 to 5%

 

I had that very discussion with a client today. He acquired 10,000 bottles of alcohol for resale to Xmas. Value $1m. Cost him $100K + excise duties which will be payable on shipment as its a bonded product. ROI is way above singe digit interest rates

 

[QUOTE="There is a general misconception that [a loan from a company to a shareholder to use in a home loan offset account] can be repaid on 29th of June every year and reborrowed 1 July, interest free. But this is not the case.[/QUOTE]

I've been searching through the ATO advice and various other sources but haven't found any specific reference to this apart from you post. Is there any variation on the extreme example of 364 days loan rinse and repeat that is acceptable?

 

Tax Tip 365: Borrow from Company, Repay on 30 June and Reborrow 1 July? Tax Tip 365: Borrow from Company, Repay on 30 June and Reborrow 1 July?

 

Many thanks Terry, you've saved me at least half of those 6 hours

 

You would be amazed at how many accountants suggest people actually do that.

 

huge division 7a issues. they basically advised their clients to create an unfranked dividend for the entire loan balance.