Capitalising interest...

The deductability status of capitalised interest has been a hot topic for a long time, so I read with interest the article in Nov API from Julie Hartman of BAN TACS regarding a new take on this.

The question, (if I understand it correctly) is about the dominant purpose test. The article describes an investor whose dominant purpose in capitalising her investment interest and paying all income (including rent) into her PPOR was to own her PPOR sooner, and any tax benefit was incidental.

It also seems that the investor was adopted this strategy regardless of the tax implications and applied for a private ruling after the finance structure was in place.

So... there are still some unanswered questions (to me) that some here might be able to provide opinion on. And some questions might only get answers via a private ruling, but here goes anyway.
1) Would an investor who re-arranges their existing structure to capitalise interest be seen to be making the arrangement to obtain a tax benefit?
2) Would the arrangement still work if the investor has multiple properties?
3) If one decided to follow this same path, would it be expected that the finances would be structured first, THEN a private ruling would need to obtained on the deductability of the interest? ie. the investor would need to be seen to be entering the arrangement regardless, and any positive tax ruling is "a bonus"?
4) If the interest on the capitalised interest was denied in the new private ruling, would a component of the investment interest (that based on the original amount of the debt) still be tax-deductible?
(The "how long is a piece of string?" question)
5) Does anyone have any idea as to what time savings may be possible on a complete paydown of a PPOR? (Might need a roll of toilet paper to list all the assumptions!!)
I know a lot here will promote IO for PPOR with 100% offset (we're on PI for PPOR with 100% offset, 4 IPs on IO) but we're likely to live here for a loooong time, and unlikely to convert PPOR to IP, so since we're already moving down the path of paying off PPOR, looking to speed that process up.

I haven't done any modeling yet for our particular circumstances but look forward to comments and opinions.

Thanks,
Rob.
 
PPOR & Tax

I suggest you pay some money for some good tax advice as you appear not to understand the basic premise underwhich the ATO operate. Expecting free advice from a forum like this is a little disingenuous. Pay for good advice and dont expect to get it for free. The forum is to discuss ideas not give out free tax advice.

Just my 2 cents
 
Thanks BobbyGee. My accountant isn't open on a Saturday, so thought I'd seek some "opinion" not "free advice" here. :D

Will certainly not be going down any particular path without professional advice.
 
Thanks BobbyGee. My accountant isn't open on a Saturday, so thought I'd seek some "opinion" not "free advice" here. :D

Will certainly not be going down any particular path without professional advice.

I wouldn't feel too bad, capitalising interest has been discussed on this forum at length in the past, not sure why now would be any different. Try a search on capitalising interest in the search function. There's one thread that runs to about 12 pages, with 100 different posters giving their opinion and thoughts on it...
 
I wouldn't feel too bad, capitalising interest has been discussed on this forum at length in the past, not sure why now would be any different. Try a search on capitalising interest in the search function. There's one thread that runs to about 12 pages, with 100 different posters giving their opinion and thoughts on it...

Thanks PI. I thought this "new" ruling may have changed some perceptions... I'll do the search and see what comes up. Will also talk to acct. (Mine's fairly conservative, tho', so no doubt will err very much on the side of caution; but that's why I pay him - to keep me out of trouble!!)
 
From what I can gather you would probably have to apply for a private ruling to ensure your situation was covered. Articles about capitalising interest have stressed that the deductions applied to that case only as per a private ruling.
Marg
 
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