Lending to related entity?

Discussion in 'Loans & Mortgage Brokers' started by Purple Patch, 26th Jun, 2021.

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  1. Purple Patch

    Purple Patch Well-Known Member

    Joined:
    19th Jun, 2015
    Posts:
    160
    Location:
    Darwin
    I am in a situation where I am required to pay out a vendor financed loan in August and was hoping to refinance the current loan against the asset, as the initial valuation 2 years ago was below purchase price.
    I am not able to refinance or top up the existing loan, even though the recent valuation of the asset came in substantially higher than purchase price 2 years ago. The issue is new servicing calculators! Big 4 and mortgage broker both confirm the situation. The total debt including vendor finance is still below 80% LMI.
    I am able to pay out the vendor loan from savings, put aside for another reason, and will be selling a property next April to assist with the servicing issues we are facing.
    I wish to lend the money from myself to the entity holding the asset (company & trust structure) until May next year and when we can refinance the initial loan and top it up, then repay the personal loan to myself. I wish to keep all borrowing tax deductible at all times, especially when the loan from myself is repaid back into my savings.
    I am assuming a loan agreement with myself and the entity, including a realistic interest payment, would be required. I don't believe a Division 7a complying loan is applicable or helpful in this situation.
    Any suggestions on whether this can be done simply by oneself or is it something that requires a legal touch?
    @Terry_w @Paul@PFI
     
  2. Terry_w

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

    Joined:
    18th Jun, 2015
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    Australia wide
    If you have the skill you can draft your own agreements, but one of my clients was denied deductibility of interest in a private ruling application.
     
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