Capitalising interest

[want2bewealthy]

So its legal and can be utilised on loan servicing, which is what I intend to do so I don't need to use any of my own money.

I'm just a little concerned about one thing though.

I've since read that if you use borrowed funds to meet the rental shortfall instead of your own money, you are at risk of the ATO disagreeing that those funds are not tax deductible.

What does one do with his/her own money when capitalising interest?

Do they put it into another account?

does your portfolio need to be structured differently in terms of which account the funds are drawn from?

Will the ATO always ask why you haven't used your own money?

Please, discuss.

 

[Rob Williams]

This thread has some info and a link to the Bantacs website, where there is, apparently, some discussion on the issue.
http://www.somersoft.com/forums/showthread.php?t=46964

 

[stumunro]

speak to your accountant ... but what I do is use my income to pay for non deductible things, and use the LOC to pay for deductible costs.

Have had no problems with accountancy, and although I don't do this, there are ways you can even use the LOC for dual purposes (deductible and non-deductible) it will just cost you more for the accountant to separate them all.
*** i dont recommend this ***

I have my mortgages draw straight from the LOC.

 

[Arkay]

Yes. Speak to your accountant. We've just done this for 18 months. Capitalised everything, went through some interesting times with our current accountant suggesting it wouldn't be allowed but in the end the ATO put it through with no issues whatsoever. How you structure it is important and at the end of the day this is a grey area of taxation. The ONLY way you can know up front if you will be ok is to get a private ruling from the ATO before you implement your strategy. You at least are in the position of knowing that before committing to it. If you don't have a private ruling for you and your specific circumstances there is no guarantee that you won't get a nasty surprise at a later stage.

Cheers,

Arkay.

 

[want2bewealthy]

Cheers guys.

I've spoken with my accountant and the news is positive as I thought.

If its tax deductible then no problem, if its not then there is a problem, simple as that.

I think we like to over-complicate things around here..

 

[Rob Williams]

I think we like to over-complicate things around here..

Gee, ya think?