Tax issue



From: Kai Ding

I have 2 questions and wonder if someone could help me.

1. I know a primary residence could be rent out for up to 6 years without paying CGT. What if I rent out a portion of the primary resident home for less than 6 years, for example I live in the home and rent one room out?

2. If I borrow 300K IO loan for a IP, assume I have surplus every week. There are 2 ways to pay less interest(I already paid off my home loan, I know the interest I saved is tax deductible but it is better not paying interest if I can) by using a credit card with 55 interest free and pay off the balance every month:
A). Find a loan with 100% offset account and deposit all the income to the offset account every week.

B). Deposit all the income direct to the IP loan every week.

If I withdraw the surplus money, say 30K, for personal use late, I believe in option
A). I can claim interest of 300K again.
But in option
B). ATO may only allow the interest of 270K even the balance goes up to 300K because they may say the purpose of withdrawal is for personal use. I could say I only deposit the surplus money temporary in the IP loan.

A IO loan with 100% offset is more expensive. If option B works same as option A, of cause I would choose option B.


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Reply: 1
From: Dale Gatherum-Goss


If your house remains your only home you are free to treat this house as your PPOR regardless of whether you rent a room or not. Thus, the sale of the house in time to come will be tax free given the current laws.

As to the other question, I believe that by depositing funds into the loan the ATO will consider that you are attempting to repay the loan and therefore disallow the extra interest when you draw down on the funds again. They will follow the money and argue that the $30k drawdown was for personal purposes and thus not tax deductible.

I hope that this helps.

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