How to avoid tainting a loan?

Discussion in 'Accounting & Tax' started by glasszon, 11th Aug, 2017.

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  1. glasszon

    glasszon Active Member

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    I got a property that will settle in September and looking to borrow funds from relatives for settlement to maximize the negative gearing. I was told I need to deposit the funds into my bank account with the lender (which will also act as the offset account after settlement), how do I ensure the fund I borrow from the relative won't be tainted when I use the amount for settlement?

    I am thinking to borrow more than necessary and refund any money back to the relative after settlement occurs, is that the best way to ensure the full amount will remain tax deductible by just not utilising any money from myself in the settlement account?
     
  2. Terry_w

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

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    Who told you that?

    When a bank lends you money they don't pay into a bank account of yours but draw cheques at your direction.
     
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  3. glasszon

    glasszon Active Member

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    The banker, I signed the loan contract last week and she said I need to arrange for the shortfalls in fund (ie. the remaining 10% deposit + stamp duty + other incidental cost) to be available in my bank account with the lending bank 5 days before settlement and they will take it from there.
     
  4. Jamie Moore

    Jamie Moore MORTGAGE BROKER - AUSTRALIA WIDE Business Member

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    Hiya

    All sounds pretty standard.

    The remaining deposit/costs needs to come from somewhere - the majority of the time the borrower nominates an account for it to be taken from on settlement day.

    Cheers

    Jamie
     
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  5. glasszon

    glasszon Active Member

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    Thanks Jamie, given I will borrow the remaining deposits/costs from my relative (copied a page from Terry's tax tip), I should be fine if I just zero out the account before placing the borrowed money from my relative and return any residual fund to her after settlement?

    Just want to make sure it won't turn my loan with relative into a mixed use loan, to maximize negative gearing.

    For example, let's say the required fund to complete from myself is $251,376. Can I borrow $255,000 from my relative and return the remaining $1,624 to her after settlement? I know I can't have my own fund in the settlement account or I can't prove the money I borrowed from relative went into purchasing the property, or am I overthinking it?
     
  6. Terry_w

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

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    Why are you listening to a banker!

    This is only half of the story. The money doesn't have to be in your bank account it could be in a solicitor's trust account or your could supply bank cheques at the day of settlement.

    Get some legal and tax advice.
     
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  7. glasszon

    glasszon Active Member

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    Thanks Terry, will chase up my conveyancer. I got a solicitor to draft up the loan agreement with my relative so that's fine, just not sure how I need to transfer the funds so I can conclusively prove that the borrowed fund went entirely to the purchase of the property (and hence eligible to claim negative gearing on).
     
  8. Paul@PAS

    Paul@PAS Tax, Accounting + SMSF + All things Property Tax Business Plus Member

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    Good reason to use a solicitor v's a conveyancer demonstrated
     
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  9. glasszon

    glasszon Active Member

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    I just contacted my conveyancer but he said the same thing as the bank, just transfer more than required and they will take the money as needed on settlement day, is there a way I can make sure I don't taint the loan by mistake?
     
  10. Terry_w

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

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    Conveyancers are not licenced to give tax advice.

    See my tax tip 1
     
  11. glasszon

    glasszon Active Member

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    Thanks Terry, guess it's time for me to give my accountant a call.