The ATO and interest capitalisation?

I have an investment loan on an IP and a line of credit that is used to pay the interest bill and any rental expenses. The rent goes into my normal account and I top up the LOC as required - to cover the interest etc. The LOC is never used for non-investment/ deductable purposes!

I heard the ATO was getting strict on this setup because I could use the rent income for purposes other than investment purposes - like pay my bills before the IP loan, or pay down a personal loan (which I don't have...) etc. and this could be considered tax avoidance?

Has there been any recent developments or rulings to 'clarify' this?
 
Who says rent income must pay down IP loans...?

rent is income like any other.

It's the drawing out of the LOC for private purposes and claiming the full interest (incl the private bits) as IP related that gets the ATO antsy.
Could be wrong but check with your accountant.
 
Has there been any recent developments or rulings to 'clarify' this?

Some info yes: http://bantacs.com.au/newsflash/Newsflash_258_1st-November-2012.pdf

....the action of choosing to borrow to pay expenses that is a scheme with a dominant purpose of a tax benefit. What the ATO are saying is that interest incurred on borrowings for rental property expenses (if you have non-deductible debt) is no longer deductible by virtue of threats to apply Part IVA, not by any legal precedent or legislation. But it is still ok to capitalise the interest on a margin loan for shares or run or claim interest on an overdraft for a small business.
 
What is your purpose in doing it this way? If it is merely to pay off your own home sooner than the ATO can deny the claim for the interest.
 
Whatever. Soon the ATO will garnishee everyone's rental income and tell you where it has to be paid otherwise Part IVA applies. 1984 here we come.
 
the primary purpose for most investors and business owners to cap interest is so they can go again faster, sooner and better so they can earn more money and pay more income tax long term..

Im not a tax guy, so ALWAYS refer the client back to their tax adviser...........

For those that are "chicken" ( or perhaps even sensible ??) a PBR in favour should be obtainable if structured the right way

ta
rolf
 
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