Adding holding costs to investment loan?

Hi

I'm wondering if it is possible to add "holding costs" to an investment loan.

Specifically, consider the scenario of buying a 350,000 investment unit (inclusive of all up front purchasing costs).

Say I borrow 400,000 - have 350,000 owing, and 50,000 available for redraw.

Could I draw down on this 50,000 for "holding costs" as needed. I refer to costs such as strata fees, insurance, rates, interest, property management fees, repairs/maintenance etc?

I'm specifically asking from a taxation perspective, not from a banking/finance perspective.

It seems to me that the purpose of drawing extra on the loan in the above scenario would be for the purpose of investment, as the expenses relate to holding the investment.

If it is allowed. Are there any negative implications of doing this?

I really appreciate your time!
 
From a tax perspective, until the investment is earning income the holding costs are not deductible. They would be deductible as a capital cost when you sell. Not tax advice only guessing.
 
Some people do this type of thing. Make sure you discuss it carefully with your accountant first and be very clear on what items you can and can't borrow money for.

I'd avoid paying the interest bill in this manner. There are cases where it's permissible, but it's a fine line and more than a few people have gotten themselves in trouble (with the ATO) trying to claim interest shortfalls.

The money you're saving from your own pocket by doing this sort of thing should be put towards something useful, such as paying off non-deductible debt. Otherwise you're probably not really getting ahead.
 
Thanks vaughan & Peter_Tersteeg

From a tax perspective, until the investment is earning income the holding costs are not deductible. They would be deductible as a capital cost when you sell. Not tax advice only guessing.
The intent would be to rent it from "day 1" after purchase, obviously there might be a week or two of vacancy, but it would be "on the market" prior to settlement, with availability from "day 1". Perhaps the term "holding costs" was the wrong one to use.


The money you're saving from your own pocket by doing this sort of thing should be put towards something useful, such as paying off non-deductible debt. Otherwise you're probably not really getting ahead.

Yes, the intent would be to put the money I'm saving by doing this towards my PPOR. It seems like all upside, which is why I'm assuming it can't be ok! ;) As I've indicated.. these costs would all be directly associated with the investment property.
The only argument I can see from the Tax Office against this is "you generated 15k of income and had 20k of expenses over the FY, yet you claim you needed to borrow the 20k, when you only really had a 5k shortfall".
 
From a tax perspective, until the investment is earning income the holding costs are not deductible. They would be deductible as a capital cost when you sell. Not tax advice only guessing.

Not correct. If the property acquired is intended to produce assessable income as soon as practical after acquisition (rent) than costs to acquire the property and its outgoings can all be borrowed. ie property, duty, legals, P&B, initial repairs, reno etc.... Whether its a revenue or a capital outgoing the borrowing costs (interest, fees an borrowing exps) are deductible v's income.
 
Not correct. If the property acquired is intended to produce assessable income as soon as practical after acquisition (rent) than costs to acquire the property and its outgoings can all be borrowed. ie property, duty, legals, P&B, initial repairs, reno etc.... Whether its a revenue or a capital outgoing the borrowing costs (interest, fees an borrowing exps) are deductible v's income.


So what period of time is "as soon as practical"?

Say a big renovation and structural additions take 12 months, then the property is rented out. Holding costs deductible?
 
So what period of time is "as soon as practical"?

Say a big renovation and structural additions take 12 months, then the property is rented out. Holding costs deductible?

You are talking about three types of costs.

1) The actual building expenses - many of the reno expenses will not be deductible because they are of a capital nature. They may be depreciated when the house is available for rent.

2) The interest on the money borrowed to pay the above expenses may be tax deductible from the start if there is an intention to rent.

3) If you do not actually pay the IP loan interest and let it add to the balance by compounding then you may still deduct for the interest expense.

Notice that I say "may" because it must not only be legally correct, but also not be part of a tax avoidance scheme that could be struck down.

That is where the professional advice is useful, where you can make a full disclosure in order to obtain a reliable opinion.

At the moment the thread is vague and merely fishing for ideas.
 
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