Company Loans to Directors and Related Parties
Company directors sometimes lend company funds to either themselves or related parties (family, colleagues etc). Generally, this is seen as a great way to use company assets. Funds invested in banks receive a small, if anything, yield on that invested. Funds may be used to pay off mortgages, personal loans., or needed for that special purchase or holiday. A great use of money, you might think. However, there are rules in place that ensure that related party loans are made at market interest rates.
Generally, loans are only for one year and are subject to interest rates published by the ATO. These rates are shown below.
|
Income year ended 30 June |
Rate |
ATO reference |
|---|---|---|
|
2024 |
8.27% |
This is the ‘Indicator Lending Rates – Bank variable housing loans interest rate’ published by the Reserve Bank of Australia on 7 June 2023. |
|
2023 |
4.77% |
This is the ‘Indicator Lending Rates – Bank variable housing loans interest rate’ published by the Reserve Bank of Australia on 2 June 2022. |
|
2022 |
4.52% |
This is the ‘Indicator Lending Rates – Bank variable housing loans interest rate’ published by the Reserve Bank of Australia on 2 June 2021. |
|
2021 |
4.52% |
This is the ‘Indicator Lending Rates – Bank variable housing loans interest rate’ published by the Reserve Bank of Australia on 2 June 2020. |
|
2020 |
5.37% |
This is the ‘Indicator Lending Rates – Bank variable housing loans interest rate’ published by the Reserve Bank of Australia on 4 June 2019. Note: Annual Taxation Determinations for the benchmark interest rate are no longer published. |
Loans need to be renegotiated each year and a loan document prepared. The interest from the loans are considered taxable income. Alternatively, the interest cost can be an interest expense, depending upon how the funds are used.
We can help to ensure you have the correct documentation and pay the correct amount each year, and ensure you are compliant..
