I got this from bantacs.com.au
Capitalised interest is deductibleHart’s case would not have had to resort to Part IVA if it wasn’t. If you can’t afford to make the interest payments on your rental property, borrow to pay it then the interest on that loan is deducible as well. As long as it is not a contrived scheme to gain a tax benefit ie you have a genuine reason for not being able to pay the interest.
Please seek advice on your particular circumstances before acting on this information.
Been reading a lot about capitalised interest and been thinking of getting a LOC. But, as stated above, if I can service my IP with the rental income and salary I currently receive then I SHOULD (???) pay interest and expenses with my earnings as paying via a LOC will be seen as a "contrived scheme to gain a tax benefit." Could somebody confirm this, please?
I believe that Julia has argued somewhere that just because you have to ability to pay the interest with other money doesn't necessarily require you to do so. I have spoke to someone who was high up in the ATO about this, and his view was similar to Julia's and he also added that having the LOC and the investment loans at different banks would also help by creating more distance between the two. It can also help if there are different entities involved.
But the ATO could still use their powers under Part IVA to disallow the deductions if they view that the dominant reason was to save tax – even negative gearing could be disallowed -some people even negative gear property just to save tax.
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
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