Payment methods for the IP by LOC?

If we use LOC against PPOP to pay for an IP, we can claim tax deduction for LOC interest. Is it correct?


However, I wonder how we use LOC to pay for an IP at the settlement date. There are the possible payment methods:

1. At the settlement date, use LOC to buy a bank cheque and present it to the conveyancer.

2. Transfer the fund from LOC to a bank account, then use that bank account to buy a bank cheque and present it to the conveyancer.


3. Transfer the fund from LOC to a bank account, then use that bank account to pay directly to vendor (if the loan account and the bank account in the same bank i.e. CBA)


With the payment methods above, I wonder if there are any troubles for interest tax deduction claiming from the ATO perspectives.

Any other suggestions or different payment methods suggested
Thanks
 
If we use LOC against PPOP to pay for an IP, we can claim tax deduction for LOC interest. Is it correct?

I think this is a very specific topic to discuss with your accountant. I've seen a couple of cases where a client tried to do this and did get into trouble with the ATO. It seems they have a problem with you claiming interest on a loan where you borrowed money to pay interest. Individual circumstances can come into this.
 
I have this come up a lot. Guidance from the ATO would be nice.

Terry's answer while correct is the black and white version and it appears to me that there is whole lot of grey there ie 2 and 3 can both be OK in certain instances. If you can manage to do it direct from the loan that's obviously the preferred option.
 
I think this is a very specific topic to discuss with your accountant. I've seen a couple of cases where a client tried to do this and did get into trouble with the ATO. It seems they have a problem with you claiming interest on a loan where you borrowed money to pay interest. Individual circumstances can come into this.

I think you are confusing the issue here Pete. Interest on interest is a grey area sure but interest on a loan used to assist in acquiring an investment is deductible.

disclaimer not a tax guy
 
I read it as using a LOC to make repayments on another IP loan, then claiming the interest on the LOC.

Certainly claiming interest on a LOC used as funds for a deposit and stamp duty isn't an problem. Using it to make repayments can be a problem.

Looking at the wording of the original question it could be interpreted either way.
 
I read the Ops post as using the LOC to pay for the deposit and other costs associated with purchasing.

If you are contemplating using the LOC to pay interest then this is a totally different scenario and deductibility will depend on why you are doing this.
 
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