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Taxation treatment re repayment of loan

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I loaned some funds to my son to use in his loans and mortgage business in 1997. He has been paying me (an interest rate of 5%) on a monthly basis of the outstanding amounts.

My question(s) are as follows 

1. Is there a taxliability for the funds as and when they are returned to me, currently the interest is included in my tax return and all taxes are paid accordingly.

2. Will my sons business be liable for any tax on the repayment of the principal owed to me. I understand his business declares the interest paid to me as an expense and the loan is on his books an unsecured amount owing.

 

3. What is the tax treatment of the funds when the monies are repaid on  his business?

 

My sons business pays taxes on the generated income of the loan ongoing.

 

Thanks any help will be appeciated.

 

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ATO Certified Response

Former Community Support

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Hi @bertd

 

Welcome to our Community!

 

If the loan is being repaid on a monthly basis including (5%) interest, you'll be required to declare the interest you're receiving in your income tax return each year. The interest will be used to calculate your assessable income and any tax payable. 

 

As tax is only paid on taxable income (assessable income minus allowable deductions), the principal loan amount would be considered an expense for your son's business.

 

As we don't know enough details about the situation, you may wish to discuss the tax treatment of the principle and how it should be treated with us my phoning 13 28 61 between 8am - 6pm, Monday to Friday to speak with an operator or follow up with a financial adviser.

 

Thanks, JodieH.

1 REPLY 1

Most helpful response

ATO Certified Response

Former Community Support

Replies 0

Hi @bertd

 

Welcome to our Community!

 

If the loan is being repaid on a monthly basis including (5%) interest, you'll be required to declare the interest you're receiving in your income tax return each year. The interest will be used to calculate your assessable income and any tax payable. 

 

As tax is only paid on taxable income (assessable income minus allowable deductions), the principal loan amount would be considered an expense for your son's business.

 

As we don't know enough details about the situation, you may wish to discuss the tax treatment of the principle and how it should be treated with us my phoning 13 28 61 between 8am - 6pm, Monday to Friday to speak with an operator or follow up with a financial adviser.

 

Thanks, JodieH.