How would one go about accessing equity from a third party to use for their own investment purposes, ensuring the interest on the funds were recognised as tax deductible?
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How would one go about accessing equity from a third party to use for their own investment purposes, ensuring the interest on the funds were recognised as tax deductible?
Very common. I do one for clients every few weeks - set up loan agreements and give legal and tax advice. I don't lend my own or other client's money as too risky.
And, you would be surprised how many people lend money to others without any written agreement in place. Last week I had a broker who had lent $150k to a client who couldn't settle on the loan - one year ago and he still hasn't gotten any money back, and the borrower was a complete stranger!
anyone got a spare 150K they want to lend to a complete stranger .... well it is the silly season..
And, you would be surprised how many people lend money to others without any written agreement in place. Last week I had a broker who had lent $150k to a client who couldn't settle on the loan - one year ago and he still hasn't gotten any money back, and the borrower was a complete stranger!
With the stranger, where re they currently with getting the money back?
Only 2 ways really.
1. Use their property as security for your loan.
2. Borrow from them.
1 may be difficult unless you are spouses or a director/company relationship.
2 is more straight forward. To be able to deduct the interest you should have a written loan agreement.
Jointly buying with them would also involved either one or the other of the above.
Terry, could you elaborate a bit more on the tax implications of the above?
For case 1:
Is it correct that the interest on the loan would be 100% tax deductible for the investor (providing it's use to buy an IP), and the 3rd party would receive no tax implications?
In the case of part ownership, is it required that all names that have part ownership be listed on the title? If so, and if ownership changes from 50/50 to say 60/40, will CGT and stamp duty be required?
Terry, could you elaborate a bit more on the tax implications of the above?
For case 1:
Is it correct that the interest on the loan would be 100% tax deductible for the investor (providing it's use to buy an IP), and the 3rd party would receive no tax implications?
?
Whoever you pay the interest to will have to declare it as income on their tax return.
Marg
The loan could be interest free (or even below CPI)? Then you could use it to effectively shift tax deductability from the investor to the 3rd party (who could be in a higher tax bracket), which may be beneficial in certain family situations..
If the loan is interest free, there's no tax deductibility issue, is there?
There is if the 3rd party took out a loan, secured against their property, in order to lend money to the investor. The 3rd party still have to pay interest on the amount borrowed against their property, while the third party pays no interest.