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Loan from trust

Discussion in 'Accounting, Tax & Legal' started by jrc77, 10th Mar, 2009.

  1. jrc77

    jrc77 Well-Known Member

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    26th May, 2008
    Posts:
    147
    When taking out a unsecured loan from a discretionary trust (which will be used to purchase income producing investments - with the intention to claim the interest as a deduction) I am told that the interest rate needs must be at a commercial rate to avoid issues with the ATO.

    Hence I am trying to find a link (preferably to something on the RBA website) that can give me the rate I should be using each month.

    The link "http://www.rba.gov.au/Statistics/Bulletin/F05hist.xls" provides a list of different indicator lending rates, but not sure which one I am supposed to use.

    Can anyone assist?

    Regards,

    Jason
     
  2. Simon Hampel

    Simon Hampel Co-founder Staff Member

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    Hangon. You want to take a loan FROM a disc. trust ? Why ?

    What is the purpose of having a trust if you don't intend to hold your assets in it ?

    Why bother with the expense and hassle ?
     
  3. jrc77

    jrc77 Well-Known Member

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    Sim,

    The loan from the trust is a short term solution. I have a loan that has a focus of debt for investment purposes but is *secured* against my PPOR. I am selling my PPOR and won't be buying another for a year or so but wish to maintain the tax deductability of the loan. Hence am refinancing to a unsecured loan from the trust and then in a years time will refinance again to a loan secured against my new PPOR.

    In the long term, I will be attempting to build up significant assets in the trust :)

    Regards,

    Jason
     
  4. Simon Hampel

    Simon Hampel Co-founder Staff Member

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    Fair enough.

    I've seen loans (eg margin loans) that will use something like 2% above the 90-day bank bill rate for their variable loans.
     
  5. Rob G.

    Rob G. Well-Known Member

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    Melbourne, VIC
    The unsecured personal loan (fixed or variable) seems appropriate on your brief facts.

    Another possibility is to secure the loan against your investments so you pay a lower (e.g. margin) rate AND maybe get some asset protection since your Trust holds prority as a secured creditor ?

    Also you know that it won't play silly securities lending games with your assets.

    Cheers,

    Rob
     
  6. jrc77

    jrc77 Well-Known Member

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    I had been told to use the unsecured personal loan interest rate but from the link I found on the RBA website "http://www.rba.gov.au/Statistics/Bulletin/F05hist.xls" this seems to be currently 14.1% which seems extremely high to me. Not sure that the ATO would like me using that! ;)

    Or am I misreading the loan indicators off the RBA website?

    Regards,

    Jason
     
  7. try anything once

    try anything once Well-Known Member

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    melb
    A loan to a creditworthy borrower paying 14% sounds a pretty good asset for the trust to own in today's climate!!