Capitalising interest - draft ruling

[Jonathon]

Very interesting ruling, it's definitely required reading for anyone who is capitalising interest on a LOC secured against their PPOR.

 

[Terryw]

Here is another PBR 93035, where capitalising interest was allowed:
http://www.ato.gov.au/rba/content.asp?doc=/RBA/Content/93035.htm

The ATO chose not to apply Part IVA and said:

Generally speaking Part IVA will only apply to an arrangement where:

· you obtain a tax benefit from a scheme – a benefit that would not have been available if the scheme had not been entered into, and

· it could be objectively concluded that you had entered the scheme for the sole or dominant purpose of obtaining the tax benefit.

 

[Terryw]

Another one PBR 94313:
http://www.ato.gov.au/rba/content.asp?doc=/RBA/Content/94313.htm

This one involved capitalising interest in a way which was deemed to be a scheme, but was thought not to have be entered into with the dominant purpose of obtaining tax deductions.

 

[Carimwell]

See also
Private Binding Ruling authorisation number 1011345133229
http://www.ato.gov.au/rba/content.asp?doc=/RBA/Content/1011345133229.htm

This would seem to suggest that if your LOC and Home Loan are 'linked' (which they are if they are both secured by your PPOR, and the total loan limit is constrained by the value of your PPOR), then the ATO considers that depositing rents into your Home Loan or an associated offset account, while capialising interest on your LOC used for IP Loan interest and other investment expenses, constitutes a scheme with the purpose of tax avoidance, even though you argue it's purpose is to pay off your home loan faster. Is that how others interpret this?
Cheers

 

[Rolf Latham]

u can even argue that its sp that your servicebility increases so u can buy more IPs more quickly thus a strong commercial reason.

But black can be white, not just grey

ta
rolf