Tax Office view on Deposit Bonds

From: Dale Gatherum-Goss


Hi!

I have just had a phone call from the tax office legal people to explain their view on deposit bonds.

They take the view that the cost is not tax deductible at all. Furthermore, that the cost is not part of a borrowing cost.

The only good part was that we can claim the cost against any future capital gains as part of the cost base of the asset.

I hope that this helps.

Dale
 
Last edited by a moderator:

Sim

Administrator
Reply: 1
From: Sim' Hampel


I seem to remember articles in API mag which stated that they are deductible (the article writers opinion only no doubt)... this could have a bit of an impact on some people who were assuming they were.

sim.gif
 
Last edited:
Reply: 2
From: Waverly Bay


Hi Dale - thanks for that. Very interesting.

When you have a minute, can you set out for us the technical basis for the ATO disallowing a deduction for the deposit bond costs.

thanks

Waverly
 
Last edited by a moderator:
Reply: 2.1
From: Dale Gatherum-Goss


Hi

I have nothing in writing, only a verbal opinion of the application of the law.

The officer who came back to me seemed to be familiar with how deposit bonds worked and said that:

The costs are not incurred in earning your income. So, they failed S. 8-1 of the 1997 ITAA.

They were incurred in buying the IP, instead, and therefore formed part of the cost base of the asset for CGT purposes.

They confirmed that there were no precedents, rulings or determinations on the issue.

I hope that this helps

Dale
 
Last edited by a moderator:
Reply: 2.1.1
From: Lotana Von Amor


Dale,

If that's the case and deposit bond purchase is not allowed as an expense rather forming a part of cost base, then the interest on the borrowed money to buy a deposit bond surely is allowed.

Regards,

Lotana
 
Last edited by a moderator:
Reply: 2.1.2
From: Dale Gatherum-Goss


Me again

It's just a thought, but, I have been looking at some of the paperwork that I obtained from Deposit Bond Australia (GE Finance) and although there is a summary of the "benefits to the buyer" . . . a tax deduction is NOT one of the benefits listed.

Now, I may be a cynical old bugger, but, if a sales brochure hawking the reasons why we should use a service like this doesn't even raise the possibility that it might be tax deductible then my logical mind says it is unlikely and this is without my tax law knowledge.

Just another thought.

Dale
 
Last edited by a moderator:
Reply: 2.1.1.1
From: Dale Gatherum-Goss


Hi Lotana

You wrote:

"If that's the case and deposit
bond purchase is not allowed as an expense rather forming a part of cost base, then the
interest on the borrowed money to buy a deposit bond surely is allowed."

Yes, I would agree with your thinking.

Dale
 
Last edited by a moderator:
Reply: 2.1.2.1
From: Rolf Latham


Hi all

If the ATO officer applies the same rule to the loan costs then they would not be "depreciable" either, so there is a level of inconsistency there.

A loan and a bond are both financial instruments to obtain an asset to derive an income. They are both directly linked to the aquisition of the asset. I have great difficulty in how they could be treated differently under 51/1

Often wrong But Never in Doubt

Rolf
 
Last edited by a moderator:
W

WebBoard

Guest
Reply: 2.1.2.1.1
From: Kevin Forster


Rolf

There are many inconsistencies in tax office rulings. This may appear to be one of them.

Another inconsistency that I know of is a negatively geared primary production/film scheme is not allowed to be offset against your earned income but a negatively geared IP is. Personally I don't see the difference.

People say that primary production/film schemes are higher risk. I could also go along to a seminar run by Shonky Wealth Makers and get a free trip to Humpty Doo to buy a new property for $200k when the average price in Humpty Doo is $100k. In this case IP investing could be just as risky as other investments
 
Last edited by a moderator:
Reply: 2.1.2.1.1.1
From: Paul Zagoridis


You know I'm getting pretty damn tired of people referring to them as film "schemes".

Yeah I know "technically it's correct. But where's the art? Where's the culture? Where's my Porsche?

Paul Zag
Dreamspinner
The Oz Film Biz site is archived at...
http://wealthesteem.dyndns.org/
 
Last edited by a moderator:
Reply: 3
From: Michael G


Dale,

But buying property as a business, would they then not be classed as a business expense?

Michael G
 
Last edited by a moderator:
Reply: 3.1
From: Dale Gatherum-Goss


Hi Michael!

Yes, you could, I guess, as the asset is now trading stock if you were flipping the properties . . .

As for wraps, mmmmm, I'd have to think that through.

Dale
 
Last edited by a moderator:
Top