Duckster

I don't think the ATO can suddenly change the law on what is deductible and then backdate it! can u give any examples where this has happened.

What they can do is decide that someone is doing something as a scheme and declare it invalid. This happened in the Hart case. It wasn't that an allowable deduction was suddenly outlawed and this backdated. The judgment in Harts even says that capitalising interest is allowable and that they probably could have done something similar and had it accepted if it wasn't setup as a scheme. It seems they set their loans up with the dominant purpose of gaining tax benefits, over and above the commercial benefits.

Maree

Deductibility depends on the purpose the funds are used for. If you set up a LOC and use the funds to buy a new property to live in, then you can't claim the interest on this.

Hi

You could possibly increase the loan to 90% LVR and maybe even 95%. If you refinance this will lead to break costs from your fixed loan, which could be hefty, but you would end up with a lower interest rate.

For tax purposes the extra money borrowed will not be deductible if used for the new PPOR. You can only claim the interest on the original $170,000 portion. So I would stop paying this off if you can, and then keep your cash for the new place.

Yes, s118-145 of the ITAA allows you to rent out your main residence and still treat it as your main residence for up to 6 years. This means you can keep it free from CGT while still being able to claim all the normal expenses such as rates, depreciation etc.

I just reread the original post – and it seems less aggressive than the Harts.

In the Harts case it was a product marketed by a lender with the specific aim of increasing tax deductions. The Harts put all of their income and rental income into the home loan portion and let the whole interest on the LOC capitalise.

Paul is using the rent to pay part of the LOC loan

Thanks Dan

Now you have me thinking. I actually have a new trust which is accumulating income losses due to a house being built, so I am interested in the answer. Though I am still not convinced with your example as it concerns primary production loss which is treated differently.

I will do some more research.

Thanks

Another mine is closing down in Tasmania -was announced on Thurs last week.

I think there may be some good returns in mining towns, but very risky.

I think the calculation method is outlines in your loan documents. If not, ask them how it is calculated. It will be complex, but they should tell you how they work it out.

Dan,

You sure? I am not an accountant and have no losses to offset so I am not sure – though I will have to deal with Capital losses from shares next year.

My understanding is If it was a person, then the capital gain would be added to the person's income, so a low or negative income would mean the CG would be offset.

But with a trust, I thought the income retains its character and is passed on through to beneficiaries. So if a trust has a income loss and a capital gain they are treated separately. The capital gain is distributed. I don't think it can offset the loss before being distributed.

Any accountants out there who can confirm? Eddie? It may work out better if I am wrong.

Look at the contract you entered into with the agent. It should be covered there. If you can't find it maybe just tell the agent you want to manage it yourself and I am sure they will tell you they need xx weeks notice.