Ozperp,
Is my situation in the same boat as Mrsdawnrazor?
Is there any way we could make that original purchase money tax deductible?
If the person taking out the investment loan and the entity providing the cash up-front are the same entity, then unfortunately, you're screwed with regards to tax deductibility.
You can't "fix" it other than using the loan proceeds (in excess of those required for settlement) for further investments, eg to buy shares, or as a deposit on another IP. You can't repay your private funds with an investment loan and retain deductibility.
As I said before, the only way you can possibly get around it is if you as an individual contribute cash (by way of a loan to the Trust buying an IP), and the Trust repaid you as an individual with money borrowed by the Trust.
Another possibility is if that initial cash deposit was provided by a friend or relative (or even a spouse not on the title, if your finances are separate), and you had an agreement written up requiring the loan to be repaid. So if that friend or relative stumped up that cash, and they provided it to help you buy the investment, and you're required to repay them, then it's possibly deductible. You'd have to ensure, though, that you could demonstrate that the money came from that party, and that you have loan documents etc to support your position, which obviously would only be possible if that had been your intention since before the loan was made.
If you bought the IP in your name, and took out the IP loan in your name, and the cash contributed was yours, you've got no easy fix, unfortunately.
I agree with you that it's entirely ridiculous and pedantic. I think that for those people who are investors,
all your loans, up to the extent of the purchase price of your investments, should be deductible.
So if you have a PPOR with a mortgage, an IP bought for $400K, and shares purchased for $150K, it shouldn't matter which loans are secured against what, or which cash actually went where,
you should be able to claim the interest on $550K worth of debt.
If you own a PPOR outright and borrow $100K to buy shares, the interest on the $100K is deductible. If you bought $100K of shares with cash before purchasing a PPOR, then borrow $100K to buy your PPOR, the interest on the $100K isn't deductible. It's silly!