Hi all. I was talking to a mortgage broker today and he suggested that it was OK to deposit business funds into a private mortgage offset account provided you only used the account for that purpose and that you transferred the funds back to a company account prior to the 30th June each year (and obviously put them back in after the 1st)?
For a bit of background I have a business that typically has a reasonable cash balance sitting in the bank doing very little but which I need to access at short notice. Balance fluctuates between just a few thousand and up to 80K at times but probably averages around 40K. Obviously if I could offset that against my home loan I could save around $2500 per year rather than the business earning a lower interest which is then taxed.
The broker claimed that because the offset account does not actually receive any interest then from a tax point of view there is no personal gain from having the money in that account and therefore no tax liability. Provided the funds are repaid by the end of year each year then there is no deemed drawings so again no tax liability there either. To me it would seem that the interest saved by having the business funds in the offset account would be a fringe benefit but the broker was confident this is not the case because no interest has actually been earned?
Just wondering whether anyone can confirm whether this is a valid strategy or whether other people are doing this?
Thanks!
The issue is you are gaining an advantage – why else would you do it? The govt and ATO are cracking down on loans between companies and shareholders / directors. I would get some solid advice about this from an accountant who specialises in FBT, or a tax lawyer, before proceeding.
Did you ask the mortgage broker if he / she is a registered tax agent, or whether they would give you this advice in writing? Go see a professional, it may cost you a few dollars now, but it may save you if the mortgage broker's tax advice is incorrect.
I think this is problematic. As Dan said the company will need a special loan agreement to lend an associated party money.
Firstly, the money is not your money, it is the company's money. Director's of the company have a legal fiduciary obligation to work in the company's best interest. Even if you are the sole director and shareholder these rules apply. This is covered under the Corporations Act and common law. If you have other shareholders, then they may not be too happy either.
Then there are various tax rules regarding this, see the Dvi7A requirements. You will need a written loan agreement between you and the company. The term of the loan and the interest rate charged will depend on the security of the loan. You would be expected to pay interest to the company too – if no security, then the interest rate should probably be higher.
So, it is probably not a good idea to do this.
But, maybe you can work around the rules a little. eg. if the company gives you a wage, maybe you could get the whole year's wage on july 1. This will help save you interest.
But, I am not qualified to give tax advise, so see a tax advisor.
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
Reds, as Terry states he is not a tax advisor, so unless your mortgage broker is, I wouldn't be taking what he says as gospel unless he backs it in writing (at least if he does back it you can chase him when the ATO hits you for avoidance etc).
Thanks everyone – the broker did state that he wasn’t a tax advisor and that I should get my own advice on this (but that he did it himself). To me it didn’t sound right and at the very least I thought there would be an FBT liability. I prefer not to push the boundaries too far so I think I will just give that idea a miss.
How can this idiot advise you to transfer money from a business account when he or she has no knowledge of how your accountant has structured your cash flows …
THIS IS WHY brokers must be licensed to give FINANCIAL advise sue the idiot
Get some good advise for gods sake I am sick of reading about basic stuff like this on this site … or are you plugging yourself as this is yr second post I am amusing this is yet another self plug … if it is it's about time admin sorted out the member criteria once and for all.
Why not give us the name of the broker or their email address or his business name and which bank they are representing then I will ring the bank and tell them how they are advising clients to get loan business aaahhhhhhhhh
D
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