Q&A: Receiving Benefits from a Third Party Due to a Loan — Concern of Interest
Receiving Benefits from a Third Party Due to a Loan — Concern of Interest
Question
Hello Rabbi,
Regarding the matter of the free-loan fund for kidney transplant recipients that I mentioned a few days ago, I wanted to ask: if, say, I lend someone 1,000 shekels, and as a result of the loan I become entitled to a tax credit of 35% of the amount of the loan, it comes out that I am receiving something similar to interest (not from the borrower but from the state). Is there a rabbinic prohibition of interest in such a case?
Best regards,
Answer
I don’t think so, because there is no payment being given here in exchange. If I were to make a bet with you that you would not lend money to so-and-so, would that be rabbinically prohibited interest? In my opinion, no (unless you did it from the outset as an artificial scheme to circumvent the prohibition of interest). By the way, I don’t see a situation in which a loan entitles one to a tax benefit. After all, the legislator also knows that a loan is not an expense and is supposed to be repaid.
Discussion on Answer
You’d need to ask a CPA or a lawyer who specializes in tax law, because I’m not familiar with the law. But from simple reasoning it seems problematic to me, since in essence this is a loan and you are presenting it as a donation.
[By the way, how would you explain to the tax authorities the amount entering your account if it isn’t repayment of a loan? Wouldn’t that itself be taxable? And if so, then in any case you’d be paying tax on that income, so it comes out the same, no?]
Those are also the concerns I had. But on the other hand, legally speaking I don’t see what offense there is in agreeing in advance with the transplant recipient that he will pay me back money corresponding to the donation to his fund. I’ll try to send the question to a lawyer to make sure.
There’s no problem as long as you pay tax on what he pays you.
What he pays me could be considered a gift, and would therefore be tax-exempt.
That’s a gift which you stipulated with him in advance that he would give you in return for the loan. I don’t think that would get past the legislator. But as I said, I’m not an expert.
Regarding the tax credit, I thought so too, but the loan works like this:
1. I transfer money to the transplant recipient’s trust fund, which is held by a non-profit organization that qualifies under Section 46.
2. The transplant recipient pays me back from his personal account to my personal account.
From the standpoint of tax law, my initial transfer is considered a donation and therefore qualifies for the tax credit. The repayments that happen afterward do not come out of the non-profit’s funds, but from the transplant recipient’s personal funds. By the way, do you think there is some kind of tax offense here?