Two other questions....
For the interest on the loan to purchase the Cashbond to be tax deductible you may have to PROVE to the ATO at some stage it was used for investment purposes. In this case, to provide an additional income stream to allow additional borrowing should be seen as deductible.
My question is, if the ATO ever queried this, how would you PROVE that the FULL income stream was actually required by the lender to get loan approval in this particular loan application case?
On many loan applications you are also required to state the value of your car, furnishings etc. that in a borderline loan approval may get you the nod. It unfortunately doesn't mean that any borrowings on the car and furniture are tax deductible
even though they may have 'contributed' in some way to you achieving a loan approval for investment purposes in this particular case. Therefore, just because I state an income or asset on an investment loan application and the loan application is subsequently approved presumably doesn't make everything in my application tax deductible.
So if you obtain a ruling that does allow the structure, I guess you MAY(?) still need to have some sort of separate/official/additional supporting documentation from the LENDER that stated, in this particular case, the full income from the cashbond was used to provide serviceability to the loan application.
See what I mean Steve? My friendly(?) local Tax Inspector rings me up and says "Why have you claimed this interest as tax deductible?". I say "I have a ruling that states my structure is fine". He/she says "the structure is fine but in this case, you prove to me that the bank required that FULL borrowing to achieve this particular loan approval".
I guess what I'm really asking is, to cover the above situation, should you then get an additional letter from the lender at the time of loan approval, stating that the annuity income stream was fully utilised in the investment loan assessment. Otherwise, how could you prove it? Also, would most lenders provide this?
For your own reasons(?) you may take out an initial loan to purchase a Cashbond larger than that is required to meet the serviceability requirements of the investment loan. I would then imagine that the ATO would want to apportion only that part of the loan that was required to meet the serviceability requirements as tax deductible. But again, how would you be able to prove what proportion of the annuity that the bank used towards granting your investment loan approval?
If after acquiring a Cashbond to provide increased serviceability for investment purposes(and you do use it for this purpose), you decide to 'cash it back in'; would the penalty costs incurred in doing this normally be viewed by the ATO as tax deductible as well?
Sorry Steve. Promise I'll leave you alone after these. It's a fascinating topic!