Tax Question

[Cales405]

I currently have a LOC which has been set up for capitalising interest.

I am looking into buying into a small part time franchise.

If I set up a new company for the franchise and loaned the company money from the LOC would I be able to pay back the loan from the company into my PPOR offset reducing my non-deductible debt, therefore having a larger liability on the deductible LOC?

This of course would be done once the company starts earning money to pay back the loan

 

[Cales405]

Anyone????

 

[Rob G.]

I presume you are making a commercial loan to your company.

Where interest is paid to you by the company and you choose not to pay down your LOC but in fact capitalise the interest while you accumulate savings ... this will be open to scrutiny by the ATO using normal principles, TD 2008/27.

So use a reasonable argument such as trying to earn unburden yourself from PPOR debt so you can free up capital/income for your business/investment.

A LOC is regarded by the ATO as a refinance each month and so use and purpose must be constantly reviewed.

When any loan principle is paid back by the company, this is deemed a partial recoupment. So if you do not place it in back your LOC the loan will partially lose its interest (and capitalised interest) deductibility.

This is my inference from TR2000/2. There are others who have more aggressive opinions.

Beware about company loans involving shareholders/proprietors going into debit.

Cheers,

Rob

 

[Cales405]

Hi Rob,

Thanks for the info.

I have set up the LOC to help pay my investment mortgages as I also have some personal debt to get rid of, which was putting a bit of financial burden on me.

All rental income is being diverted into my PPOR offset, which has been paying my personal debt. I have no other option to pay for the franchise from the LOC, as all my savings has been going towards reducing personal debt.

The purpose of paying back the loan from the company to the PPOR offset would be to reduce personal debt to put me in a position to be able to quit my PAYG job and take on the franchise full time.