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APIM
I wasn’t talking about capitalising interest. it is kind of hard to exlain, especially on a forum like this. So I will try to give an example.
A)You have a LOC, balance Nil
A home loan, Balance of say $100,000
C) IP loan, IO balance of $100,000.
D) a 100% offset account linked to the home loan with $10,000 in it.All rent and other income goes inot your Offset account (D) so that it reduces your non deductable debt.
The IP interest is added to the IP loan, and you pay it via a direct debit from (D) the offset account.
Now the good bit, Your rates for the IP are due, $500. You could pay them from the offset account, but doing this would mean the interest on you homeloan would increase as money comes out of the offset which is linked to the homeloan. SO YOU BORROW THE MONEY FOR THE RATES FORM THE LOC.The effect is you can claim interest on the payment for the rates, while at the same time decreasing the non deductible debt on your home loan. This is like converting your non deductible debt into deductible debt.
You won’t make much of a saving (Eg $2000 in expenses per year = $120 in interest claimable = $60 saved???), but if you have a few properties, it can all add up.
Like Stuart said, I am a mortgage broker not an accountant, so not qualfied to give tax advice. And I don’t know how the ATO would treat this. Part IV A (anti-avoidance provisions) may apply-but I see this as borrowing for a legitimate business/investment expense. Beware! Would any accountants out there like to comment.
Terryw
[email protected]Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
A home loan, Balance of say $100,000
