Hi Wayne

I don’t have any vacant land, so have never really looked into it and have not read those documents in full either – nor am I an accountant. I have listed them as a guide that interest can be claimed in certain circumstances.

If you don’t intend to build, then I am not sure if you could claim. But it is certainly worth looking into. Don’t rely on your accountant completely as they often are not up to date.

Terryw
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See:
TR 2000/17W
“Income tax: deductions for interest following the Steele decision”
http://law.ato.gov.au/atolaw/view.htm?locid='TXR/TR200017/NAT/ATO'&PiT=99991231235958

Hangon, this was withdrawn by the ATO on 9 June 2004)

try this one:
TR 2004/4
“Income tax: deductions for interest incurred prior to the commencement of, or following the cessation of, relevant income earning activities”

Here is a quote:
Interest incurred prior to assessable income

9. It follows from Steele that interest incurred in a period prior to the derivation of relevant assessable income will be ‘incurred in gaining or producing the assessable income’ in the following circumstances:

·
the interest is not incurred ‘too soon’, is not preliminary to the income earning activities, and is not a prelude to those activities;

·
the interest is not private or domestic;

·
the period of interest outgoings prior to the derivation of relevant assessable income is not so long, taking into account the kind of income earning activities involved, that the necessary connection between outgoings and assessable income is lost;

·
the interest is incurred with one end in view, the gaining or producing of assessable income; and

·
continuing efforts are undertaken in pursuit of that end

You can get the Tax Ruling here:
http://law.ato.gov.au/atolaw/view.htm?rank=find&criteria=AND~2004%2F4~basic~exact&target=EA&style=java&sdocid=TXR/TR20044/NAT/ATO/00001&recStart=1&PiT=99991231235958&recnum=4&tot=29&pn=ALL:::RDB

You can also view the Judgments in the case, Steele v. Commissioner of Taxation – (18 March 1997), here:
http://law.ato.gov.au/atolaw/Browse.htm?ImA=folder&Node=4~2~9~193&OpenNodes=,4~2,4,4~2~9&DBTOC=05%3ALRP%3AFederal%20Court%3A1997%3ASteele%20v.%20Commissioner%20of%20Taxation%20-%20(18%20March%201997)#4~2~9~193

And

Terryw
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If your intention was to hold the land as an investment, then I believe you can claim everything as you would on a investment house.

Previously the ATO did not allow it, but there was a case many years ago, I think Steel’s case which changed things.

Terryw
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If you pay extra off the loan on an investment, then your money is trapped. If you redraw and use it for personal reasons the interest is not deductible and it can create an mess.

A better way would be to change the loan to IO and to use an offset account. It will have the same interest saving effect but keep your deductions high if you use money for personal stuff. IO also lowers the repayments and helps you service more loans.

A good strategy is as the duckster said. Get a LOC to 80%, or about $184,000 in this case, less you current loan should give you around $27,000 in available funds. You can then use these as deposits on the next one and repeat the process.

There’s nothing wrong with doing what your doing. Some people like to pay down debt, but maybe you can fine tune it a bit.

ps I am assuming your own home is fully paid off – otherwise the spare cash should be in a 100% offset account on your home loan.

Terryw
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you might need both. a superfund will beno good for holding property that you need to borrow for as superfunds cannot borrow.

Firstly ash your accountant why they are suggesting that. If it doesn’t make sense, get a second and thrid opinion.

Terryw
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Why not change your current loan to interest only. This would reduce the repayments to $425 per week. You could also set up a 100% offset account and keep all spare cash in there to save interest. This will also keep tax deductions high in case you never move back in. You may still be able to claim the place as your main residence and sell it CGT free for up to 6 years too.

You should also get back some money on tax by claiming borrowing costs, building depreciation and depreciation of fittings.

Terryw
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Wow that is lucky.

I think you can claim depreciation as it is based on the value, not what you paid for it.

Were you receiving rental income before you owned it? If so, that is a bonus, but I don’t think you could claim things at this stage – it would be like you renting it and subletting it out. You would probably have to declare the rent.

Terryw
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CT

In Richard’s eg they would take the 20% deposit for the IP from the LOC on the PPOR.

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You should probably talk to an accountant to set up a trust – especially if your intention is to use it for investment. See what your conservative guy says and take it from there.

Terryw
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