If a family member lends funds for another family member to purchase an investment property and charges interest on the loan, is the interest deductible for the member/owner of the property?
I assume if one claims a deduction, the other member declares the interest in their tax return.
What rate of interest should be charged against the loan?
Answer
The interest is deductible to the owner of the property as the principal was used to invest in an income-earning asset.
You are correct – the lender must include the interest they receive in their assessable income.
A commercial interest rate should be charged, making reference to the big 4 bank’s standard variable home loan rate.
This interest rate will fluctuate over time.