Charging interest to a trust

Hi Paul,

If the trust is discretionary with a company as trustee, and not a unit trust would the below points you mentioned still apply ?

If the director uses his/her own equity funds to lend to the trustee of the trust to buy an IP and passes on whatever interest rate the bank charges the director onto the trust, would this enable the trust to claim a tax deduction on the interest paid to the director's loan ? If a loan agreement is in place is there any circumstances where the ATO would require interest charged to the trust to be less or higher than what the director pays the bank in order for the trust to claim a tax deduction on the loan interest?

 

You have to ask yourself this:
if a bank is lending you say $100,000 at say 4% with the loan secured by a first mortgage over real property, would it be an arms length transaction if you lent this same $100,000 to another person at the same interest rate without security?