Hello all,
Just a quickie, We need enlightenment on a dilemma, can you claim a tax deduction for the interest paid on a loan for a deposit on an IP ? the IP is an apartment development that should be constructed & settled in 18-24 months. Our dilemma is do we add the loan to 1- our PPOR mortgage, or 2- our loan on a vacant block, or 3- a new loan, or 4- any other ideas?Thanx,
BF
We try to keep all of our loans distinct and definitely well away from PPOR loans.
I have always claimed the interest on all the borrowing which includes deposits.Hope this helps.
A
HiBF
I think you might find you can’t actually claim a tax deduction for the interest until your IP starts to produce income or is available to produce income.
TomCheck with your accountant. I believe it is decided by the intention to produce income.
Put the loan wherever you like – if with your PPOR make sure you have a split to show it seperately.
Cheers,
Simon Macks
Finance Broker
[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.
Hi Bigfella,
As Simon has indicated the purpose of the loan is to buy an income producing investment and as such the interest on your deposit is deductible even though, at this point in time, the property is not earning an income.
The Steele case is a good reference point in instance like this when the taxpayer (Steele) won the right to claim interest on a house and land package under similar circumstances as yours.
An elongated timeline may negate this principle.
Derek
[email protected]
http://www.pis.theinvestorsclub.com.au
0409 882 958Thankyou all for your rapid responses, another one now [biggrin], it was mentioned to me (by a fellow novice in IP’s) about converting the vacant land loan to a line of credit & adding the additional funds required to it?, would there be any merit in this?
again thanx
BFHi Bigfella,
Line of credit accounts can be problematic from a taxation point of view.
There is a certain attractiveness to mixing personal and investment expenses which leads to major difficulties at tax time. Any repayments made are apportioned across both private and investment expenses rather than the tax payer being able to designate repayments as being for either private or investment costs.
Additional funds are best parked in an offset account as they are cleaner to access and the impact of interest reduction is retained.
Derek
[email protected]
http://www.pis.theinvestorsclub.com.au
0409 882 958Derek,
Thankyou for your reply, thats cleared things up for me, I’ll keep the loan separate from our others for ease of tax purposes.
I gather I won’t be able to claim the Interest paid on the deposit until the Apartments are built & settled in approx 18 months to 2 years? (therefore a proven IP Tax loss) or can I claim it as a loss starting this financial year?(Sorry for the beginners ignorance)
Regards,
BF
Hi Bigfella,
You can claim the interest on the deposit from the time that interest was incurred.
Even though the investment is yet to earn an income the purpose of the loan is to purchase an investment – so costs are claimable. Just be aware that not all accountants are aware of the Steele case and will refer back to the ‘it hasn’t earn’t any income yet’ line.
Derek
[email protected]
http://www.pis.theinvestorsclub.com.au
0409 882 958Thank you again Derek, I’ll keep that in mind come Tax time, BTW, don’t know any good Accountants in the Bunbury area do you? *sic*
BF
Folks are dumb where I come frommm… YUK, YUK !
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