"Maximise deductible debt, minimise personal debt"

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From: Steve Kiddle


Question for the accountants

I buy an IP on Line of Credit account with some surplus for addit borrowings.
Then I pay all property expenses out of LOC account, incl interest while all rental income I take for personal use (deposit into own mortgage)
Is this pushing the rules with the ATO as the result is investment loan up, personal loan down accelerated.
I understand interest on interest is frowned on by ATO, so if I pay this monthly debt from personal funds does this change ATO opinion of the structure
 
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Reply: 1
From: Dale Gatherum-Goss


On 2/6/02 10:05:00 AM, Steve Kiddle wrote:
>Question for the accountants
>
>I buy an IP on Line of Credit
>account with some surplus for
>addit borrowings.
>Then I pay all property
>expenses out of LOC account,
>incl interest while all rental
>income I take for personal use
>(deposit into own mortgage)
>Is this pushing the rules with
>the ATO as the result is
>investment loan up, personal
>loan down accelerated.
>I understand interest on
>interest is frowned on by ATO,
>so if I pay this monthly debt
>from personal funds does this
>change ATO opinion of the
>structure

Hi Steve!

This issue is in a state of flux at the moment. The tax office very recently won a test case (Hart's case) and it is likely that we will see an appeal to a higher court as both parties are keen to see a final determination once and for all.

Interestingly, the court held that the interest was tax deductible but, that the only reason you would do something like this was for a tax benefit (and not a commercial benefit or reason) and therefore the anti avoidance rules denied the tax deduction anyway.


For now, I would step very cautiously but it does not look good.

Have fun

Dale
 
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Reply: 1.1
From: Rolf Latham


Hi Dale

Say I have a business thats not going so well and losing money due to the high ongoing running costs.

So I borrow the money to fund the running costs of the business, because I dont want to tip my own money in. Are we suggesting that the interest due for these borrowings cant be offset against the income from the business ?

Eventually though the business will make a dollar and pay tax.


Ta


Rolf

PS Currently perfectly clean offset accounts will soon also fall under these move the goal posts regs (just my opinion)
Rolf
 
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Reply: 1.1.1
From: Dale Gatherum-Goss


Hi Rolf

No, we cannot assume that, as, that situation would form a completely different set of circumstances entirely and I would imagine the interest would be tax deductible.

Yes, the goal posts are moving quite quickly at the moment and I think we're in for more changes yet.

Dale
 
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