loan from partnership to partner

by **vorabj** on Mon Jul 18, 2011 1:29 pm

How is the interest free loan to partners treated for tax.
A partnership wishes to take a bank loan and then lend it to some partners interest free.
or if the loan is used as withdrawal of capital.
or the partners take large drawings reducing their current and capital account and even with the possibility of turning their accounts into negative.
What is the tax position?

The idea is not to take personal mortgage on the property as this non tax deductible?

by **section 44** on Mon Jul 18, 2011 1:48 pm

Based on what you have said the interest payable to teh bank does not appear to be tax deductible.

by **vorabj** on Mon Jul 18, 2011 3:07 pm

On what basis is this not tax deductible?
Are you thinking that the loan is not used for business purpose? Surely can partnership not allow partners to draw their current and accumulated
profits - therefore can it not get a loan to facilitate that?

Partners are saying to the partnership that you have sufficient security to get a bank loan and we wish to draw our accumulated profits as we need this.