Interest on expenses tax deductibility

Isn't a savings account an investment though? It makes a return and you pay tax on the interest.

You cannot claim a deduction on borrowings at 7% to invest into a savings account paying 5% - it is not commercial and wouldn't be allowed.
 
An investment entails the acquisition of a capital asset. Cash/savings is not a capital asset so it doesn't get a deduction for the interest incurred because nothing was acquired.

This is not correct. If you were borowing at 7% and putting it into a savngs account at 8% you could claim the interest - and end up with 1% profit.
 
Also you have to remember the ATO is not going to be ruthless and they will probably allow a deduction in most cases. I have a friend who was audited and he was one of those who transfer money from a loan increase into a savings account, and intermingles it too, and the ATO didn't pick up on it. It all depends on the situation.

But it s better to be safe and do things properly.

The best way, I think, is that any loan increase should be retained in the loan. When the money is needed a cheque drawn on this account should be used. This is why a LOC is good.

If this is not possible or practical then set up a new account with absolutely no funds in it and then transfer the money there before writing a cheque. However, this method may result in the loss of deduction of interest - but at least it will give you a stronger case to argue for the tracing of funds from the original borrowings.
 
The best way, I think, is that any loan increase should be retained in the loan. When the money is needed a cheque drawn on this account should be used. This is why a LOC is good.

agreed, where possible and practical. We just need to get some of the lenders to play ball : )


ta
rolf
 
So to clarify,

I get a LOC for 60k secured by PPOR
I use 40k of this for deposit and purchasing costs for an IP
I get balance of purchase price from separate IO loan
Interest from IO loan is paid from LOC
Rent is deposited into LOC
All other IP expenses are funded from LOC
IP is -ve geared so LOC balance keeps increasing therefore compounding interest

Is all the interest on the LOC deductible?
 
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