Does anyone know (or know where i can read up) whether the interest payments on capitalised interest are tax deductible in the following situation:
– 2 investment properties owned in my name; lets say 100k and 120k.
– The 100k is financed @ 6%
– The 100k is renting at $4k per year
– The 120k property is owned.If I take a line of credit against the 120k to pay 6k of interest on 100k property, then;
a) is the 6k interest on the 100K still deductible, against the 4k rent.
b) is the new interest payable on the 6k draw down (against the 120k property) still deductible.I tried reading Hart V Commissioner, and understand they pretty much called this Tax Avoidance, but they were using a split or linked loan.
Does anyone have any ideas?
I have spoken to a few good accountants about this and have received conflicting advice. I can point you in the direction of one in Sydney who would probably say it is deductible. pls PM me if needed.
Terryw
Discover Home Loans
North Sydney
[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
There is a recent thread on the aus.invest newsgroup on this subject. See if this is helpful..
(watch out for line breaks in this big URL)
cheers
EZ-Rent. The freeware tax and cashflow simulator for Australian property investors. Version 2.5 out now!
http://www.ez-rent.comI am NOT an accountant. The following is my opinion…
Originally posted by benm:a) is the 6k interest on the 100K still deductible, against the 4k rent.
YES
b) is the new interest payable on the 6k draw down (against the 120k property) still deductible.I would say no because you are just paying interest on interest.
Personally, I do not see why you would even want to do this as the tax benefit is far less than paying the debt down!!!
TMA
http://www.email4money.info
Investor Links
First Home Buyer WebsiteThanks all for the replys.
Sounds like no-one can decide whether or not capitalising is deductible.
Personally, I do not see why you would even want to do this as the tax benefit is far less than paying the debt down!!!I was thinking of doing this to take a year off work and travel and/or spend more time finding good investments.
I’m starting to think if my sole source of income is rental income and i don’t have any non-deductible debt to pay off, I might be in the clear.
I probably won’t be in a position to do this for atleast 12 months, so may PM you (Terryw) if I can’t sort out any advice for myself. Thanks for the offer.
Thanks to ez-rent for the Google thread also.
Originally posted by benm:Sounds like no-one can decide whether or not capitalising is deductible.
I am very clear on capitalising interest to reduce non-deductible debt. It is NOT deductible in my opinion.
It is a totally different ball game when only investment properties are involved. I still do not see the point of planning to go backwards. Deductions are only good when you have an income to deduct them against. In any case, you still restrict your cashflow.
TMA
http://www.email4money.info
Investor Links
First Home Buyer Website
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