I’m in the middle of re-negotiating a commercial property (CP) loan which is at an unreasonable interest rate of about 9% (neg. in 1991!!).
We’re in the position of having paid down our family home to within $1.50 with a re-draw avail of more than I owe on the comm. prop.
My question: If I redraw into a loan acct (I have 3 avail on this home loan) to the total amount owing on the current CP loan and start deducting the int. payments from the CP rent (as I am currently doing on my current CP loan) will I get hit for CGT when we eventually sell the family home?
I would think not but the ATO is the ATO, not all they do is always reasonable.
Answering my own question, the ATO site has a tax ruling that seems to lay this out exactly as I had hoped (see below). This means to me that I can use one of the accounts on the home loan to take the amount off my current CP loan provider and deduct the int. payments from my rental income. This should not have any bearing on my PPORs exemption to CGT. Your comments mucho appreciado!
ATO Ruling:
“Line of credit facilities
12. Where a line of credit facility is divided into sub-accounts and each sub-account is used for a specific purpose, interest is fully deductible where funds drawn down on an investment sub-account continue to be used exclusively for an income producing purpose. Interest is not deductible where funds drawn down on a private sub-account are used for a non-income producing purpose. “
http://law.ato.gov.au/atolaw/view.htm?docid=TXR/TR20002/NAT/ATO/00001
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]Hi 101,
Thanks for answering your own question. In doing that you may have helped me out aswell. I currently have a line of credit against my own property, but mostley used for personal use. Until recently when I used it to place a 10% deposit on a $75,000.00 property I am buying.
I would need to claim the interest on that 10% that I used but not the rest that was for personal use. Is this correct?Andrew[8D]
Spot on Andrew.
It is the purpose of the borrowing that determines deductability.
That is whether it was used for investments returning an income (even neg). This precluds investment such as bare land which is not rented. Although the interest component can be accrued and deducted from any capital gain before CGT is applied.
Simon Macks
Mortgage Hunter
[email protected]
0425 228 985Hiya all,
I’m curious Simon, if you were to sell this bare land to a family member for say 50% less.
Does the same maths apply with you paying CGT, do they ATO use your selling price or is it council evaluated ?Michael
just bePS thank for your help lately [
]Michael,
You really need an accountants advice. I think the issue might be that of market value and a transaction at arms length should you be audited.
cheers,
Simon Macks
Mortgage Hunter
[email protected]
0425 228 985
Hi 101,
Thanks for answering your own question. In doing that you may have helped me out aswell. I currently have a line of credit against my own property, but mostley used for personal use. Until recently when I used it to place a 10% deposit on a $75,000.00 property I am buying.
I would need to claim the interest on that 10% that I used but not the rest that was for personal use. Is this correct?Andrew[8D]
Hi Andrew.
Yes. Usual procedure is to have two L’sOC and use one only for tax-deductable spending, and the other for personal. Easy to do, and saves accounting headaches apportioning interest.
TerryTerence McMahon
HomeWin
FinanceI’d say it would be a great idea to have a seperate account for the 10% deposit component. Most loans allow these facilites now. Reading the ruling makes me think you can do it without a split facility but it would be a bit messy.
As to CGT. Can anyone verify that even if the loan facility is on the POPR using a sub-account for investment purposes will not affect the POPR with respect to CGT. I’m almost certain it would not but…
Stu
Stu,
I can’t imagine any reason how it could affect your CGT exemption on your PPOR.
I do exactly the same thing myself.
If you need someone to tell you exactly then ask your accountant who is insured to give that kind of advice[
]Simon Macks
Mortgage Hunter
[email protected]
0425 228 985Comments may not be relevant to individual circumstances. If you intend making any investment, financial or taxation decision you should consult a professional adviser.
Thanks Simon for the reassurance. My acct has also backed it up so I’m going ahead. Saves me about 2.45% on my current deal (9% down to 6.55). That’s got to be good.
Stuart
]
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