Transferring business cash to your home loan
Moving money from your business account to your home loan? Be very careful about how you do it and ensure that the process is documented.
One of the more concerning trends in recent times is the advice from some banks to homeowners to use business cash to pay down their mortgages. While it might make some sense to use excess cash in your business, there are some significant potential consequences for business owners who decide to do it.
Money within your business account belongs to your business; it's not personal cash and can't be taken out of the business for personal use even if you own the business.
While these amounts are often debited to the shareholder's loan account in financial statements - usually you, the business owner – Division 7A rules ensure that any payments, loans or forgiven debts are treated as if they were dividends from the business for tax purpose unless there is a valid shareholder loan agreement in place.
To be a complying loan agreement, the agreement requires minimum payments to be made over a set period of time, applying the minimum benchmark interest rate to payments (currently 5.45%).
The rules are also very strict when it comes to loan repayments because these can be ignored if it looks like you're planning to borrow a similar or larger amount again from the company. A similar issue can also arise if you transfer funds from a trust bank account, especially where that trust already owes amounts to a related company in the form of unpaid distributions.
Contact us on 02 9957 4033 for more information.
This article is provided for information purposes only and correct at the time of publication. It should not be used in place of advice from your accountant. Please contact us on 02 9957 4033 to discuss your specific circumstances.