Can LOC be used to pay for building / pest inspection?

Hi Folks,
I am just wondering if a LOC that is set up for investment purposes can be used to pay an expense such as a building and pest inspection?

I understand that the inspection itself is a capital cost (added to the cost base of the property) but would like to know this: If a LOC is used to make the payment, does that mean that it becomes "tainted" for future interest deductibility or is this type of expense OK?

To put it another way, I believe you can borrow for a capital improvement and still claim the interest as a tax deduction but can you "borrow" for a building and pest inspection?

Cheers
 
Last edited:
Thanks Terry,
Just following on a little from this - if a treatment for say, termites was necessary, could this be paid for using the LOC as described earlier? I suppose I'm thinking that it's not an 'everyday' type of expense/repair to keep the tenants happy but it also doesn't sound like a capital improvement (to me). :confused:

Could any accountants out there clarify this?

Regards, ff
 
I think any expense related to business or investment could be borrowed and the interest deducted. Insurances, council rates, maybe even airfares etc. Keep your own money for the non-deductible home loan and borrow for every thing else.
 
Interest:

You can deduct interest on money borrowed for a purpose to earn your assessable income.

This includes where the money is used for capital expenses such as acquisition or improvements of the property.

However, if the pest inspection is part of your costs of generally searching for a new investment property, then this is likely too preliminary to be for earning your assessable income ... so interest may not be deductible and any borrowing against your LOC will be a mixed purpose.

The inspection cost:

Note that if the pest inspection is for a finance arrangement (borrowing), not only is the interest deductible ... but the actual inspection cost may be deductible over up to 5 years.

A pest inspection on an IP you already own may be fully deductible if you think an infestation has occured after you held the property as an IP and is not part of an arrangement to perform improvements. e.g. a survey of whether repairs are necessary.

I cannot guess all your details, so the answer is "maybe". A five minute chat with your Accountant could save you days of posts here.

Cheers,

Rob
 
Top