Arranging debts to reduce tax liability part 2

Question from hugh updated on 22nd January 2008:

following the previous question. Is it possible to incorporate any part of the $700,000 debt in the family trust as expenditure to minimise tax liability of trust income. My guess is that the $200,000 debt incurred in purchasing the commercial property for rent is a revenue expenditure and therefore deductible. But can the $500,000 also somehow be used to minimise tax liabilities. kind regards hugh

Our expert responded:

In reference to this question, please also see the answer to your previous question. If a property owned by a trust has a loss, this loss must remain in the trust for the trust's use only. It is carried forward and offset against future profits and cannot be given to the beneficiaries for them to use in reducing their personal income tax liability in any way. Whether or not the interest on the $500,000 loan will be tax deductible will depend on the purchase price of the commercial property and how the loan is structured by the bank.

Kenina Court is a director of Acorn Solutions Limited, an accounting firm dedicated to working with clients to help them create wealth. She is an avid property investor, entrepreneur and seminar presenter on asset protection and wealth strategies.


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