Line of Credit



From: Mr X

Hi All,
Can a LOC be used to pay for ALL expenses already paid on an IP or only from when the LOC is established?
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Reply: 1
From: Mike .

Hi Mr X,

Not many tax experts on this forum so get advice from the ATO or tax accountant, but I'll have a stab in the dark based on simple reasoning.

You are suggesting reimbursing yourself for expenses paid before the LOC was setup. I think it is possible provided the purpose of the loan was to pay IP expenses, the expenses were incurred in the current financial year, the loan was taken in the current year, the interest on the loan is offset against other income in your tax return, the loan amount equals the expenses, you have invoices of those expenses to prove they were legitimate.

Well, that's my 2c worth. It's almost worthless so seek expert advice before taking action.

Regards, Mike
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Reply: 2
From: Terry Avery

This is not an expert opinion but if it was all done in the same financial
year then it is unlikely to be questioned. The other approach is that in a
business an owner puts his capital in to start his business, as the business
becomes successful and makes a profit he can then repay his capital to
himself. This is not income and so it not taxed. As a business can also
borrow money for its operations you may be able to argue that the LOC was to
fund your business and to repay the capital.

Or another approach may be that the LOC was refinancing of certain aspects
of your investment which you funded yourself. As refinancing costs are
allowable deductions and the interest payable on the refinancing you could
try treating in that manner.

As always seek more information and professional advice before taking
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Reply: 2.1
From: Kylie S

There is an article on this subject in this months API

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