Can My Company Pay Off My Mortgage? We Explore a Hot Topic

This is a question that clients often ask us.

Can I use a company loan or funds to drive down my personal mortgage? 

The rationale is that by using company cash to offset a personal mortgage, and transferring the cash back by 30 June, you can reduce interest on non-deductible debt.

It sounds like an excellent strategy. 

So, can my company pay off my mortgage? 

Unfortunately, the answer is no. 

In short, by following this game plan you are using company funds to procure a personal gain—and that’s a penalty kick to the ATO.

Sure, you could execute this action as a one-off and possibly avoid attracting the tax office’s attention. But multiple attempts would set up the possibility of triggering a deemed unfranked dividend under Division 7A. 

Section 109R of the Income Tax Assessment Act was designed for scenarios like this.

Quite simply, if the strategy were to be set in motion, the repayment you make will be ignored. 

This means a deemed dividend could be triggered in relation to the funds initially borrowed from the company—unless a complying loan agreement is established. In this event, minimum loan repayments would have to be made to avoid a deemed dividend emerging.

Let’s break it down with a hypothetical…

You are a shareholder of a company—or an associate of a shareholder—and you borrow money from the business on 1 July 2023. 

This loan would typically fall within the scope of Division 7A, but a deemed dividend can be avoided if the loan is fully repaid by the earlier of the due date and actual lodgement date of the company’s 2024 tax return. 

However, if you repay the loan but it appears that you intend to borrow a similar or larger amount from the company when making the repayment, that repayment can be ignored. 

The main exception to this scenario is where the repayment is made in a way that is taxable to you—for example, dividends or directors’ fees are set-off against the loan balance.

Among the most common situations where section 109R could apply is where funds are taken from the company’s bank account and placed into a director’s home loan offset account. 

Even if the funds are transferred back to the company before the end of the financial year, there is a significant risk of section 109R applying if the pattern repeats. 

That means, the money will be treated as a dividend and taxed as assessable income.

And suddenly you’ve lost the intended advantage you set out to create in the first place.

As we said at the top, posing the question ‘can my company pay off my mortgage?’ appears at face value to form the basis of a solid strategy. Sadly, it’s a tactic that is to be filed into the ‘too good to be true’ category. 

Fortunately, there are plenty of proven tax strategies that you can implement. We have outlined several of these in our detailed 2023 tax-planning guides. There are handy tips for both individuals and small business owners—download the guide now. 

For more tax advice or to pose other curly questions—or if you just want expert help to build your financial future—reach out to the team at PrimeAdvisory. Email [email protected] to get started.