All Topics / Legal & Accounting / using LOC to make repayments

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  • Profile photo of PropertySeekerPropertySeeker
    Participant
    @propertyseeker
    Join Date: 2006
    Post Count: 43

    Hi everyone,

    If I use my LOC to make repayments to a mortgage would the interest on that portion be tax deductible?

    Thanks
    PS

    Profile photo of TerrywTerryw
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    @terryw
    Join Date: 2001
    Post Count: 16,190

    Depends on many factors such as the reason for doing this.

    Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
    http://structuring.com.au/
    Email Me

    Lawyer, Mortgage Broker and Tax Advisor (Aust wide) http://propertytaxbook.com.au/

    Profile photo of MayuranMayuran
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    @mayuran
    Join Date: 2010
    Post Count: 20

    I also have similar question , I have a PPOR & IP , can i pay all the rent i receive to the PPOR , and take out another LOC and pay for the IP loan ? will this be allowed for tax purpose?

    Profile photo of TerrywTerryw
    Participant
    @terryw
    Join Date: 2001
    Post Count: 16,190
    Mayuran wrote:
    I also have similar question , I have a PPOR & IP , can i pay all the rent i receive to the PPOR , and take out another LOC and pay for the IP loan ? will this be allowed for tax purpose?

    Again, would depend on the situation and purpose. Why would you want to structure it that way?

    Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
    http://structuring.com.au/
    Email Me

    Lawyer, Mortgage Broker and Tax Advisor (Aust wide) http://propertytaxbook.com.au/

    Profile photo of MayuranMayuran
    Member
    @mayuran
    Join Date: 2010
    Post Count: 20
    Terryw wrote:
    Mayuran wrote:
    I also have similar question , I have a PPOR & IP , can i pay all the rent i receive to the PPOR , and take out another LOC and pay for the IP loan ? will this be allowed for tax purpose?

    Again, would depend on the situation and purpose. Why would you want to structure it that way?

    So that i can reduce the interest on PPOR loan , which cannot be deducted against my income …

    Profile photo of TerrywTerryw
    Participant
    @terryw
    Join Date: 2001
    Post Count: 16,190
    Mayuran wrote:
    Terryw wrote:
    Mayuran wrote:
    I also have similar question , I have a PPOR & IP , can i pay all the rent i receive to the PPOR , and take out another LOC and pay for the IP loan ? will this be allowed for tax purpose?

    Again, would depend on the situation and purpose. Why would you want to structure it that way?

    So that i can reduce the interest on PPOR loan , which cannot be deducted against my income …

    In that case the interest on the LOC would likely NOT be deductible. see:
    TD 2011/D8

    Income tax: does a taxpayer's purpose of 'paying their home loan off sooner' mean that Part IVA of the Income Tax Assessment Act 1936 cannot apply to an 'investment loan interest payment arrangement' of the type described in this Taxation Determination?
    http://law.ato.gov.au/atolaw/view.htm?docid=%22DXT%2FTD2011D8%2FNAT%2FATO%2F00001%22

    Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
    http://structuring.com.au/
    Email Me

    Lawyer, Mortgage Broker and Tax Advisor (Aust wide) http://propertytaxbook.com.au/

    Profile photo of MayuranMayuran
    Member
    @mayuran
    Join Date: 2010
    Post Count: 20
    Terryw wrote:
    Mayuran wrote:
    Terryw wrote:
    Mayuran wrote:
    I also have similar question , I have a PPOR & IP , can i pay all the rent i receive to the PPOR , and take out another LOC and pay for the IP loan ? will this be allowed for tax purpose?

    Again, would depend on the situation and purpose. Why would you want to structure it that way?

    So that i can reduce the interest on PPOR loan , which cannot be deducted against my income …

    In that case the interest on the LOC would likely NOT be deductible. see:
    TD 2011/D8

    Income tax: does a taxpayer's purpose of 'paying their home loan off sooner' mean that Part IVA of the Income Tax Assessment Act 1936 cannot apply to an 'investment loan interest payment arrangement' of the type described in this Taxation Determination?
    http://law.ato.gov.au/atolaw/view.htm?docid=%22DXT%2FTD2011D8%2FNAT%2FATO%2F00001%22

    Thanks Terryw

    you are great!

    Profile photo of TerrywTerryw
    Participant
    @terryw
    Join Date: 2001
    Post Count: 16,190

    But, there may still be ways to do what you want to do, so don't give up.

    It may also be wise to apply for a private ruling..

    Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
    http://structuring.com.au/
    Email Me

    Lawyer, Mortgage Broker and Tax Advisor (Aust wide) http://propertytaxbook.com.au/

    Profile photo of MayuranMayuran
    Member
    @mayuran
    Join Date: 2010
    Post Count: 20
    Terryw wrote:
    But, there may still be ways to do what you want to do, so don't give up.

    It may also be wise to apply for a private ruling..

    How do i do that?
    Mayuran

    Profile photo of TerrywTerryw
    Participant
    @terryw
    Join Date: 2001
    Post Count: 16,190

    The law says that interest in deductible if the funds borrowed are used for investment purposes. The ATO has also confirmed that interest on interest would be deductible where the original borrowings is for investment purposes. But they have said in TD 2011/D8 that they will disallow the deduction on the capitalised interest if the dominant purpose if to pay off your own home loan sooner. They do this under Part IVA of the ITAA 1936 if you are doing something with the dominant purpose of obtaining a deduction.

    Therefore, you could be able to claim a deduction if the reason if the dominant purpose was not to claim an extra tax deduction but for other reasons. One reason that may be applicable could be for cashflow.

    So in order to be safe if could be a good idea to apply to the ATO for a private ruling, outlining your situation and the reasons for doing this and then asking would the interest on the LOC be deductible?

    You can apply for a private ruling by doing it yourself, search the ATO website, or using a tax advisor.

    Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
    http://structuring.com.au/
    Email Me

    Lawyer, Mortgage Broker and Tax Advisor (Aust wide) http://propertytaxbook.com.au/

    Profile photo of mike.12mike.12
    Member
    @mike.12
    Join Date: 2010
    Post Count: 36

    Mayuran,I have already set it up and it works fine.Spoke to accountant,and like Terry has said that LOC should be only used for investment.As soon as you mix it for your personnal use then ATO will question you.

    you can send me an e-mail  and can foward you the structure which I have set up.

    Mike

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