Interest on capital costs tax deductible?

[billie40]

We've just purchased our first IP. We have a loan against our PPOR (loan A) that is being used to fund purchasing costs and will soon have the second loan (loan B) to fund the balance. For tax purposes, should I ensure that all purchasing costs (even conveyancing, building and pest etc) come out of Loan A ? I am under the impression taht even though these are capital costs, the interest on them is tax deductible? Can somebody please clarify?

Thanks

 

[Paul@PFI]

Where the intention is to produce assessable income (rent) the loan interest for costs to acquire an IP are deductible. ie : interest on two loans - 20% you have secured against PPOR + 80% other loan, are both deductible.

All outgoings assoc with the IP can be drawn from financed money if you want. ie costs to acquire it, renovate it, repair it, own it, as well as usual outgoings such as rates etc.

 

[billie40]

Thanks Paul. So is it advisable to pay as much of the IP expenses (both capital and running costs) out of the loan A rather than our offset account? Are there tax implications for paying money into the loan from our offset account to be used for renovation/repairs (for eg for renos over budget or repairs that pop up)? I just figure if we pay it directly from our offset account we can't claim any loan interest on these amounts.

 

[Terry_w]

The idea is to borrow for all investment expenses as that leaves cash available for the offset or to pay down the PPOR loan.

Using cash to pay investment expenses while you still have non deductible debt is like throwing money away. Also consider the compounding effect.

 

[billie40]

Thanks Terry. So I guess you would only use your cash if you'd run out of borrowed money?

 

[Terry_w]

Thanks Terry. So I guess you would only use your cash if you'd run out of borrowed money?

Even then you should consider using the cash to pay down non-deductible debt and reborrowing it. Subject to loan set up though