News from Noel re LOC

Whittaker Macnaught NEWS

Aussie dollar up

Prices for computers, stereos and other electronic goods – which
are almost entirely imported – fell 21.3 per cent. Shoe prices fell by
3 per cent, cars by 2.6 per cent and clothing prices were also down.
By far the biggest winners have been Australian businesses, which have
used lower import prices as a direct contribution to their bottom line. utlook that outlines the
framework for it’s decision to raise interest rates at the end of 2003.

TAX TIPS

Interest and Investment Loans
by Julia Hartman, BANTACS
Traditionally, interest is claimable only on a loan where the actual
money borrowed is used directly to produce income when the property is
purchased.
For this reason, it can be dangerous to use a line of credit facility
on a rental property loan when you will be drawing funds back out to pay
private expenses. Based on the principle that the interest on a loan is
tax deductible if the money was borrowed for income producing purposes,
the interest on a line of credit could easily become non-deductible
within 5 years.
If we take as an example a $100,000 loan used solely to purchase a
rental property. It is financed as a line of credit and to pay the loan off
sooner the borrower deposits their monthly pay of $2,000 into the loan
account and lives off their credit card, which has up to 55 days
interest-free on purchases. The Commissioner now considers there to be
$98,000 owing on the rental property. In 45 days when the borrower withdraws
$1,000 to pay off the credit card the loan will be for $99,000.
However, as the extra $1,000 was borrowed to pay a private expense (the credit
card), the situation is that now 1/99 or 1% of the interest is not tax
deductible.
The next time the borrower puts his or her $2,000 pay packet into the
account the Commissioner deems it to be paying only 1/99 off the
non-deductible portion. At this point there is $96,020 owing on the house and
$980 owing for non-deductible purposes. When the cycle continues and 45
days later the borrower takes another $1,000 out to pay the credit
card, there will $96,020 owing on the house and $1,980 owing for
non-deductible purposes. Now only 98% of the loan is deductible and the amount of
interest claimable spirals towards zero.
The ATO has released TR2000/2 to confirms this and, as it is just a
confirmation of the law, it is retrospective.

REDWING

“Money is a currency, like electricity and it requires momentum to make it Effective”