refinance investment loan


Am currently refinancing loan currently in name of
company atf Trust. debt 157K.
Propose to set up 2 loans:
1- L.O.C under own name : secured IP 300K
2- Trust(current one) : secured IP 165K
The 157K debt will be allocated aprox as follows:
In trust loan- 130K : In L.O.C loan- 27K
Q: Can the trust claim tax deductability for full amount?
I am director of trustee company as as well as principle
beneficiary .according to trust deed performing the above
should not presesnt problem.I realise I have to account for
27K loan payments in trust tax return.
your help is appreciated


The first point I want to make is that interest is only deductible if the money borrowed was used in relation to an income producing asset including refinancing an already deductible loan on that income producing asset. So assuming that $157k debt was fully deductible then it will remain so on re financing. It does not matter where the loan is secured and I am not bother that you have used a trust asset as security for a loan in your personal name if the trust deed allows it. The $130k loan seems to be fine. I can’t think of a circumstance where you would want to separate off $27k of the debt on a trust property into a LOC that is no doubt going to be used for other purposes. This mixed purpose will require apportionment of the interest according to how the money borrowed is spent. So you are setting yourself up for record keeping problems if the money is spent on anything other than the trust rental property.
By the way there is an apportionment calculator in the shopping section of our web site that will help you with this.
Until the LOC is used for another purpose yes all the interest would be deductible but to be pedantic I would recommend putting a formal loan agreement in place from you to the trust for the $27k

Have I missed something here? I can’t understand why you would want to do this.

Have a question about tax you need answered?

Ask your own tax question here

In addition to the Ask Ban Tacs service, the BAN TACS Accountants group offer a selection of digital products to help you including Getting Your Affairs in Order, The Property Cashflow Calculator and The Capital Gains Tax Calculator.

Visit the BAN TACs Shop