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raffy1950(Initiate)Initiate
21 Nov 2023

I'm offering my daughter a loan of $100K to help with her mortgage costs for her IP. The idea is she pays me monthly interest-only at a rate (mutually-agreed) lower than her bank's rate. The other condition is my funds sit at an offset acct, and not to be used for anything else, other than offsetting her loan's outstanding principal. I reserve the right to withdraw part or all of my funds if I should need it.


I have prepared an agreement based on the many online forms, templates and experts comments, and I'm reluctant to pay a solicitor to prepare what I deem to be a simple document.


My daughter's concern: when filing her ITR, will ATO allow her interest payments to me as claimable expense, especially since the agreement is not drafted by a solicitor? What are the basic things that ATO will look for to allow such deductions.

899 views
4 replies
899 views
4 replies

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Most helpful reply

Bruce4Tax(Taxicorn)Taxicorn
22 Nov 2023

I'm reluctant to pay a solicitor to prepare what I deem to be a simple document.


But you will wish that you did, if it all goes wrong.


Compromise = buy a loan document from a legal document provider.


What are the basic things that ATO will look for to allow such deductions.


  1. Interest rate needs to exceed offset rate to be a commercial transaction
  2. Fixed or variable interest
  3. Method of calculating interest e.g daily balance, monthly balance ...?
  4. Statements of account to be provided at least annually
  5. Security?
  6. Term
  7. Termination conditions



All replies

Most helpful reply

Bruce4Tax(Taxicorn)Taxicorn
22 Nov 2023

I'm reluctant to pay a solicitor to prepare what I deem to be a simple document.


But you will wish that you did, if it all goes wrong.


Compromise = buy a loan document from a legal document provider.


What are the basic things that ATO will look for to allow such deductions.


  1. Interest rate needs to exceed offset rate to be a commercial transaction
  2. Fixed or variable interest
  3. Method of calculating interest e.g daily balance, monthly balance ...?
  4. Statements of account to be provided at least annually
  5. Security?
  6. Term
  7. Termination conditions



raffy1950(Initiate)Initiate
23 Nov 2023

Hi @Bruce4Tax,

Thanks for your reply. Could you kindly clarify the following stmt:


Interest rate needs to exceed offset rate to be a commercial transaction


In my research, I have not come across this condition. My daughter's bank loan rate (P&I) is 6.39%, and we've agreed on 5.40% (IO) payable monthly. My savings rate is 5.5% from where this fund will be coming from.


I'm assuming that the offset rate you're referring to is 6.39%. If she were to pay me more then 6.39%, that would be defeating the purpose of this agreement. Our draft agreement covers all of the points you've mentioned, except the 1st one. Can you kindly provide link where this requirement is explained in more detail?


Thanks in advance.





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Family loan arrangement: claiming interest payments | ATO Community