Hi all,
We are considering purchasing a IP through a company structure. We have considerable equity in out home and would like to use some of this to loan to the company to fund part of the purchase with the company borrowing the remainder.
Is the interest I will personally incur on borrowings I will make against my home equity able to be used as a deduction from my personal income tax?
Thanks
2 make that 3 quick observations:
1) Why are you using a Company structure to purchase an investment property unless it is acting in the capacity of a Corporate Trustee.
2) If this is the way you wish to do the deal why not use the equity and get the Company to take out the loan to a 100% plus costs. There are lenders who will allow this.
3) You could do it the way you suggested however as interest would be paid from the Company to you at the same rate i cannot see any real benefit to you.Richard Taylor | Australia's leading private lender
You would just borrow the money from your LOC and lend to your company. You make an income from the interest, but the interest you are charged would offset this and the company is left with the deduction. You couldn't claim a deduction if you were gifting the money to the company nor if you were lending at a lower rate than you were being charged.
I agree with Richard that a company is not a good way to own property unless in its capacity as trustee.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Hello all,
Similarly, we are in the process of setting up a discretionary trust, with company as trustee.
Our plan was to purchase next IP property in the tust (company as trustee) and the formal advice we have been offered is to apply for the laon in our own names, then loan the money to the trust with a formal loan agreement of course (at 1% interest higher rate).
This is in effort to unloack some of the tax deductions one misses out on, when the IP is held in trust. Does anyone have any experience or knowledge about how this works in practice? IE is the new IP to be purchased NOT offered as security against the loan?
We also have 3 properties currently – all in our own name and all corss-collateralised. Is it nessesary to secure the new IP loan against our existing portfolio, or if it is actually possible to offer the new property to be held in trust as security to the lender, when the loan is in our names?
Thanks for any insight anyone can offer.
M.C.M.C.
It will be hard for you to borrow in your names if you don't own the property. Not many lenders are willing to do this. st George may be one that is ok with it.
I am not sure how this will help tax deductions though. Initially the trust will be running at a loss unless you find a healthy positive geared property. Even then the trust will have depreciation etc to offset the positive income.
So if you are charging your trust a higher interest it will be even more negatively geared. Trusts cannot distribute losses, so the loss will need to sit there to be offset against future trust income.
Meanwhile you will be making a profit on your lending – you will be borrowing at say 9% and then lending at 10%, so making 1% extra = $1000 for every $100,000. You will need to declare this as income and pay tax on it.
So I am not sure how this would benefit you – unless maybe if you were lending the money at a lower interest rate>?
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
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