Tax Tip 411: Using a Secured Loan from a Related Company to buy property Overseas?

It is generally difficult to get finance to purchase property overseas if you live and work in Australia. It may be possible for some to borrow in the foreign jurisdiction, but usually you would need to be working in that jurisdiction. It might also be possible to borrow against Australian property and then use the cash out to buy overseas, but lenders would generally not like that because of the difficulty in recovering the money if things go wrong.

Another potential method that I thought about was borrowing from a related company under a Division 7A loan. There are 2 ways to borrow from a related company

a) As un unsecured loan over 7 years with PI repayments, or

b) As a secured loan over 25 years with real property mortgaged as security, with PI repayments.

It is potentially possible to borrow for an unsecured loan and use the money to buy property overseas. But the high repayments (due to the short 7 year PI loan) will mean it is practically difficult.

A 25 year loan would be better, but I think it will not be possible for a secured loan because of the wording in section 109N ITAA36.

INCOME TAX ASSESSMENT ACT 1936 - SECT 109N Loans meeting criteria for minimum interest rate and maximum term not treated as dividends

One of the conditions of a secured loan is subsection (3)(a)(i):

“(i) 100% of the value of the loan is secured by a mortgage over real property that has been registered in accordance with a law of a State or Territory; and…”


The problem with an overseas property is the mortgage system will be different to Australia and any such mortgage is unlikely to be able to be registered “accordance with a law of a State or Territory”

Note that the words ‘State’ and ‘Territory’ are capitalised so they likely refer to Australian States and Territories – but are not defined terms in the act.