All Topics / Creative Investing / A new tax deduction????

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  • Profile photo of Mick INCMick INC
    Join Date: 2003
    Post Count: 43

    Hey all
    Everyone’s here has propably heard of interest capitalisation, and knows the ATO wont allow it. But how about capitalising expenses? Consider this!
    I set up a line of credit and charge all expenses relating to IP (except int) eg maint, capital expenses, rates and insurance. Now I could claim interest on this line of credit as a deduction as well as the expense itself. Then use the rental income (after paying int) to pay down my own home loan.
    I wonder how the ATO would view this??? I know it’s OK to do it with capital expenses but what about the smaller ones???

    So what’s everyones opinions??

    PS. PLease no one suggest I ask ATO for a ruling on this, I will do that when I get back to Aust. Just interested in opinions for now)


    Profile photo of TerrywTerryw
    Join Date: 2001
    Post Count: 16,213

    I think this should be fine. If you are borrowing for things related to investments/business then the interest on these borrowings should be deductible. I agree with this stategy, for example, if you had to pay $300 in insurance you should borrow the money from your LOC and then put the $300 you would have used off your home loan.

    BTW, I have seen an accountant and a solictor suggest that capitalising interest is still possible if done correctly. The ATO has not necessarily banned this as the Hart’s case related to a specific arrangement only.

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    Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
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    Lawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide)

    Profile photo of skeuersskeuers
    Join Date: 2004
    Post Count: 1

    G’day Mick,

    We have a split LOC for our mortgage, one side personal home loan the other investment. We have 3 IP’s and have played around with different management strategies. One self managed where we had the rent paid into the home side and all expenses payed out of the investment side, One semi- managed where an agent collected rent but paid no expenses, these came out of the investment side of the LOC and one fully managed by an agent(so just net income was deposited into our home loan side – after expenses where taken out.)

    We have claimed all interest on the expenses we have payed out of our LOC investment side now for the past 2/3 years and have used two accountants through that period, neither having a problem with claim.

    We never claimed the interest on the interest payment though with the payment sliding across from one side to the other each month.

    A couple of observations:

    Once you have more than one IP’s expenses coming out of the same LOC you have to be diligent on tracking the costs for each one.

    With “borrowing” the costs out of your LOC it’s very easy to let them blow out your credit line so watch your personal income/expenses.

    If your running the expense of more than one property out of a LOC and not paying them off it gets difficult to calculate and split the interest especially on past year losses that our still sitting in you LOC.


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