Hi Cataldop,

If you take a strict interpretation of the tax law, you cannot claim a tax deduction for income tax paid and costs incurred to pay the said amount of tax (ie: if I was to take out a loan to pay tax, the interest component would not be tax deductible). I would agree with the advice you have been given by your accountant.

HOWEVER… if you can prove you are in the business of investing in real estate (what is a business in the eyes of the ATO can be somewhat grey) then you have an argument to say that the amount has been paid from "working capital" which you can legally claim a deduction for. Take for example a farmer who may pay or draw a wage from an overdraft account while waiting for harvest income, interest in this situation is tax deductible to the farmer.

You could try another accountant to get a second opinion but I would say you will get the same response. If you do want to claim try and get an ATO ruling, although these can take a while for the ATO to get back to you. In the situation you claim a deduction from the interest on the tax payable and the ATO investigates and disallows this, the ATO will issue an amended assessment and you will be liable to pay any back taxes plus a"general interest charge" which is around 12% pa on the tax that should have been paid.

One last point, don't fall into the trap of listening to what other people have done. Get the right advice from the right people that is based on your personal situation. I have seen too many people come majorily unstuck by doing what "a mate has done".

It's probably not the response you are looking for but I hope this is of assistance.