Hey
I’ve heard conflicting oppinions on this so I just want to clarify.
If a person on a normal PAYG salary invests in something, say some managed funds, and uses a margin loan, the interest payments on the loan are tax deductible because the purpose of the loan is to produce taxable income (gains or income from the funds). Someone has just told me that if you capitalise the interest on the margin loan rather than physically make the payment yourself, then the interest is not deductible against your PAYG income. Personally I would assume that the effect would be the same as if you borrowed money somewhere else to make the payment, in which case it would be a deduction. Can someone please let me know, becayse I must know this for sure.
Thanks,
CarlHi Carl
I am not an accountant, but have approached various acountants about similar questions over the years. Some say you can capitalise interest and claim this – this is standard practice in many businesses. However thers say it cannot be done.
One idea is to get a Investment Property IO loan with bank A. You own home loan is with Bank B, and you have a LOC on this property separate to your existing loan. You then pay the interest for your IP loan from the LOC (ie you borrow money to pay interest), you then pay the monthly interest bill on the LOC. At the same time you put all spare money including rent from the IP into the offset account against your home loan – only paying the minimum amount of interest on your LOC.
This is not similar to the Hart’s case as there are 2 different banks involved, and you are not strictly capitalising the interest on one loan.
I haven’t tried it, and don’t know it if works, but it sounds good.
Terryw
Discover Home Loans
Parramatta
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Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Any other opinions on this topic?
Terryw
Discover Home Loans
Parramatta
[email protected]
Sign up to my mailing list.
Just send me a blank email, with “subscribe†in subject line.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
With my IP, I refinance after 6 months and take that money as repayment so long as the total amount equates to the full loan. IE. 100% Loan + Duty + Lawyers + reno cost + Initial reno Interest. Works out to be about
IP = 300k, Duty = 12k, Lawyers = 1k, Reno = 20k, interest in 2 month = 4k. Total topup is $339k
Note: I have to put up a very strong case with the bank so that the value of the house is 410k with an LVR of 80%. or 375k at 90% LVR.Than again, I could just take that money out and go holiday… as it’s my original layout.
[cigar]Hi Carl
I enjoy reading your posts as they often get me thinking…As I see it we get 2 types of clients, those that want watertight guarantees and those that understand the risks involved with tax and are prepared to run with those associated risks.
If you “need to know this for sure” then my advice to you is to get an ATO ruling on the issue.
Regards
Tony
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