Simon is Denied Interest Deductions on Interest he Paid

Discussion in 'Accounting & Tax' started by Mike A, 3rd Jan, 2020.

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  1. Mike A

    Mike A Well-Known Member

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    Simon is denied interest deductions he paid to his investors. How can that be ?

    Simon is a successful property developer in Sydney. He has a number of wealthy friends in Israel who have been watching his developments over the years and on his next trip to Jerusalem they take him out for some cigars and to discuss investing in his upcoming project.

    They all agree to invest $5m into the next deal. All of them live in Israel.

    It is agreed they will be paid 10% interest on the funds lent to his Australian company once the development is sold.

    Simon makes a killing from the development. Demand is through the roof. He sells all the units and happily repays the investors their funds plus the interest. Everyone is happy

    UNTIL Simon gets an audit only to find out the interest payments he made to the investors is NOT DEDUCTIBLE.

    Simon can't believe it. Its interest paid to investors. I just don't get it. Simon will when he consults a professional.
     
    Mike A, 3rd Jan, 2020
    #1
  2. Scott No Mates

    Scott No Mates Well-Known Member

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    Didn't he have a prospectus prepared, seek ASIC/FIRB approval, were his friends a syndicate or were they considered sophisticated investors?

    Where did he fall foul?

    Did he pay dividends instead of interest?
     
    Scott No Mates, 3rd Jan, 2020
    #2
  3. Trainee

    Trainee Well-Known Member

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    Withholding tax?
     
    Trainee, 3rd Jan, 2020
    #3
    Terry_w likes this.
  4. marty998

    marty998 Well-Known Member

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    Thin cap provisions?
     
    marty998, 3rd Jan, 2020
    #4
  5. Mike A

    Mike A Well-Known Member

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    Yep that is the key here. Simon didnt comply so doesnt get a deduction.
     
    Mike A, 3rd Jan, 2020
    #5
  6. Paul@PAS

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

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    Simon must seek advice on deductibility, withholding, creditability, part IVA, evasion, etc....
     
    Paul@PAS, 5th Jan, 2020
    #6