LOC, Salary and Tax

Hi All,

This is my first post. I want to give a little background info then I have 3 questions to ask. I am only new to this website/forum. I guess my loans are probably not set up in the best way (open to advice) but heres what i have atm.

Loan1. Variable rate loan, principle and interest, 100% for IP, I have my rental income paid directly into this account.
Loan2. LOC, 20% of total drawings used for IP and the remainder drawn for personal use. I have my salary and everyday expenses paid into/taken out of this account.
Loan3. Variable rate loan, principle and interest, 100% used to purchase land with the intention of building a rental property on it when I have it close to paid off.

I can only claim 20% of the interest as a tax deduction on my LOC as thats all that is used for investment purposes.

Q1:As my salary (or any other monies) get paid into the LOC account does that reduce the 20% I can claim or is that money coming off of my personal debt. I was told by my friend who works in a bank the ATO's view is that the money comes off the investment debt not the personal debt therefore each time I put money into the LOC it reduces the 20% that I can claim, is that true?

Q2: With loan3 after reading rental properties booklet from the ATO and other info from their website do I understand correctly that "as I intend to use the land to build a rental property" I can claim the interest on that loan too?

Q3: If I can claim the interest in question 2, How long have u got to actually build the property, Id like to pay most of the land of first, then build?

Thx in advance for any advice ;)
 
Hi All,

This is my first post. I want to give a little background info then I have 3 questions to ask. I am only new to this website/forum. I guess my loans are probably not set up in the best way (open to advice) but heres what i have atm.

Loan1. Variable rate loan, principle and interest, 100% for IP, I have my rental income paid directly into this account.
Loan2. LOC, 20% of total drawings used for IP and the remainder drawn for personal use. I have my salary and everyday expenses paid into/taken out of this account.
Chances are that very little left is deductible in this mixed loan, since part of each salary payment is deemed to pay down some of your investment principle, while each private redraw increases your private component - in a complicated way !!
Loan3. Variable rate loan, principle and interest, 100% used to purchase land with the intention of building a rental property on it when I have it close to paid off.
You mean you are waiting a while before commencing buiding?

I can only claim 20% of the interest as a tax deduction on my LOC as thats all that is used for investment purposes.
Maybe less - see an Accountant

Q1:As my salary (or any other monies) get paid into the LOC account does that reduce the 20% I can claim or is that money coming off of my personal debt. I was told by my friend who works in a bank the ATO's view is that the money comes off the investment debt not the personal debt therefore each time I put money into the LOC it reduces the 20% that I can claim, is that true?
Initially, $100 paid in will pay 20% off your investment debt.

Q2: With loan3 after reading rental properties booklet from the ATO and other info from their website do I understand correctly that "as I intend to use the land to build a rental property" I can claim the interest on that loan too?

You must be absolutely committed and start all reasonable preparations.

Q3: If I can claim the interest in question 2, How long have u got to actually build the property, Id like to pay most of the land of first, then build?

No time limit provided you have started and continue all reasonable actions to prepare your income producing property.

Thx in advance for any advice ;)

You stated you had some future intention to build. This is not a present activity to earn income, but merely preparatory or even contingent.

Cheers,

Rob
 
Thanks for your reply Rob,:)

To answer your question and get a little more info,

You mean you are waiting a while before commencing buiding?
Ans: Yes I was hoping to pay about 80% off before I started building the house.

You must be absolutely committed and start all reasonable preparations.
What would be considered "all reasonable preparations"? Would seeking approval from council be enough? And then wait until I have enough of the land paid off?

Initially, $100 paid in will pay 20% off your investment debt.
Sorry to go over this twice.
So it doesnt all go off the investment portion first, as I was told. Its $20 per hundred of the investment portion, and $80 per hundred of the personal debt? I got that right? (noted that the investment portion is decreasing all the time).

Regards,
Jasp.:)
 
Merely initially seeking approval and then waiting is not enough to make expenses deductible, they are purely preliminary to commencing an income producing exercise. Interest expense should be capitalised to the cost base of the vacant land.

You cannot choose which portion of a mixed purpose loan to pay down, it operates on a percentage basis. e.g. TR 2000/2

Making repayments to a mixed purpose loan and then subsequently make private withdrawals further dilutes your "investment portion".

Cheers,

Rob
 
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