Interest on Personal Land - is it ever claimable?

Interest on Personal Loan - is it ever claimable?

Hi!

I'm in the process of engaging an accountant to sort this out (and handle my accounting affairs going forward), but wanted to get some initial feedback as to what to expect on this particular issue...and to see if anyone had any experience with this in the past...

Is interest on a personal loan, used as a deposit for an OTP property, claimable?

My initial thoughts are yes, its for investment purposes and ultimately (I'm unsure if this is a relevant consideration or not...I will be laible for CGT)...
 
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Yes, the loan should be deductible. Deductibility is based on USE of funds (buying an OTP IP), not source of or security for the funds. Conversely, just because you take out a loan against an IP doesn't make the interest on that loan automatically deductible: it depends on what you use the funds for.

CGT is a completely different item. For example, a property can be CGT exempt under the 6 year rule, but interest would still be deductible when it's used as an IP.

Check with your accountant to confirm.
Alex
 
Thanks Alexlee!

Ausprop...I'd be screwed...having said that, the personal loan will be fully repaid about 4-6months before the property is scheduled to settle...
 
ha ha, yeh apart form being screwed, how is the loss treated for tax?

how about if you lent money to a company that went bust?
 
If the property will be used as a rental property, then the interest will be deductible.

If the property will be sold upon completion, meaning that it was purchased with a view to sell, then the interest will be capitalized and when the property is sold, the profit or loss on sale will be dealt with as ordinary income (ie it will not be treated as a capital gain but added to your other income with no discount available).

If you intent to live there, no deduction is available. It might be handy to keep the interest expenses in case the property loses its PPOR exemption at some stage.
 
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Mry, what happens if this crosses financial years. Say I put down a deposit now for completion next June. I deduct the interest for the ye Jun 2010 intending to rent it out, then sell in June 2011 after settlement due to a change in circumstances.

Do I then have to amend the ye June 2010 return and add back the interest to my cost base for the Jun 2011 return?
Alex
 
Mry, what happens if this crosses financial years. Say I put down a deposit now for completion next June. I deduct the interest for the ye Jun 2010 intending to rent it out, then sell in June 2011 after settlement due to a change in circumstances.

Do I then have to amend the ye June 2010 return and add back the interest to my cost base for the Jun 2011 return?
Alex

This is one of those funny and complicated gray areas. Because deductibility is determined by intent, when your intent changes we often have to track down the date that intent was changed and change our method of claiming at that point. For example, if a person built a house with the intent of renting it out, and 4 months before completion decided to sell it, we would stop claiming interest at that point and capitalize it.
 
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