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Patrick H.
Patrick H., Lawyer
Category: Australia Law
Satisfied Customers: 5421
Experience:  Dip Law LPAB - Sydney based lawyer
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If I loan my son money to buy a business ( because the banks

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If I loan my son money to buy a business ( because the banks will not ) and he has to pay me back with a small % of interest, are the repayments to me legally acknowledged as tax deductable as in the full amount - ie loan amount plus interest or just interest
Hello and thank you for your question.

If you lend your son money for a genuine business purpose, and the interest rates are commercial rates, then the interest on the loan will be treated as a tax deductible expense from your son's point of view, and as taxable income from your point of view.

If the interest rates are set at a level higher than a commercial rate then it is possible that the ATO may dispute that the loan arrangement is a genuine business arrangement an might take the position that the arrangement is some kind of sham arrangement decided to minimise your son's tax obligations. The ATO is naturally suspicious of business arrangements between close family members, and will sometimes examine such arrangements closely.

That said, I do not mean to overstate the likelihood that the ATO will dispute such a loan arrangement, merely raise it as a possible issue. In practice genuine loan arrangements between family members are a common occurrence without problems, but you should definitely seek tax advice from an accountant if the proposed loan will be on unusual terms or significant tax benefits are likely to arise for one of the parties as these can be issues which will trigger ATO scrutiny.

I trust the above assists your understanding.

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Thank you and good luck.

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Customer: replied 4 years ago.

so that being the case - if I buy the busuness and my son leases the business off me then that is surely a 100% tax deduction on his behalf

Provided the arrangement is on commercial terms then yes, the lease costs should constitute tax deductible expenses for your son.