Owning your home sooner - ATO & I

I have filed for a private ruling, as to the deductibility of capitalised interest from LOC secured against a PPOR to service the IP loan. Talking to the ATO they accept that it tax deductible under 8-1 but are looking closely at applying part IVA.

The ATO officer drew my attention to the recently released TD 2011 /D8

My initial request for a private ruling on whether part IVA does/doesn't apply reasoning was:
1. to own my home sooner, and
2. to take advantage of the current undervaluations in the investment purchased, and
3. to fund the investment without affecting personal cash flow.

Since option 1 is off the table, and it is grey area, they have given me time to formulate a reasonable response that other than a tax advantage, why would I establish my finances in this way?

Or in the ATO's words. if the tax man didn't exist, would you structure your affairs in this way? (My first thought was, but the taxman does exist, I know cause I am talking to him. Lucky I held my tongue!).

Considering my Taxation skills are limited, any advice is welcome.
the commercial consideration is to increase cashflow to purchase more investment property more rapidly thus being less of a drain on society when I retire...................

if you took your PPOR equity and tipped it into the IP and created a LOC secured to it, they would probably be ok, so whats the difference here ?


Maybe you spend all of you available cash elsewhere and so need the LOC to assist with the funding of the investment property. Therefore the dominant purpose may be to assist cashflow and not to gain a tax benefit.
The issue with arguing that it will assist your cashflow is that you have chosen to direct the funds elsewhere and the ATO will argue that you did so to predominantly reduce your other non deductible debt and therefore apply Part IVA.

So the question becomes why would someone chose to pay off their home loan sooner. i.e. why would you direct cash to your PPOR over your investment property. Now I can think of a few reasons but one to think over

1. You have a wife and children. Your wife owns 99% of your PPOR. She is concerned about her and her families future and is always worrying about your family debt levels. She understands that if you lose your job or things change that this might lead to a change in financial circumstances. She is comfortable with the debt on the investment property as this property can always be sold and the debt reduced. However you always need a place to live and for this reason she wants to reduce the home loan as quickly as possible to ensure that your family reduces its financial burden in case of changing circumstances. In the current financial market, post GFC, this is an area of concern for both of you.