just wondering if anyone out there has a line of credit and is capitalising the interest.also if you have a private ruling whether or not it is allowable/deductible.The ato have an attitude of whether or not the DOMINANT purpose of the arrangement is a tax benefit.if you are not using the funds to pay off non deductible ebt the ato seem fine with it if however you are using the income/rent to pay off non deductible debt such as the home in which you live they take another view as in the HARTSCASE2002AT 4625;50 ATR 387
In the Hart case they were using a loan product specifically designed to speed up the paying off of the home loan product while maximising the investment loan. It was marketed in this way too. This case wasn't really about the deductibility of capitalised interest as it was deemed a scheme to avoid tax and the ATO was able to apply Part IVA to arrange it. ie they denied it as it was a scheme to avoid tax.
See TD 2008/27 which basically states that capitalising interest is allowable and is deductible if the original purpose of the loan is investment/business.TD 2008/27
Income tax: is the deductibility of compound interest determined according to the same principles as the deductibility of other interest?
http://law.ato.gov.au/atolaw/view.htm?locid=%27TXD/TD200827/NAT/ATO%27&PiT=99991231235958
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
too complicated….
Complicated, but……….. could save you a fortune so it is worth trying to understand.
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
exactly.
why never never never sell? you mean keep borrowing and capitalising the interest to live off?
I have another question also – what happens if you retire and live off your equity for say 2-3 yrs and go overseas on a holiday and just enjoy but still getting rent from your properties.
Do you have to lodge a tax return if your not in Australia and not working overseas?
Can you capitalise your costs etc…….anyone here done that?
Pos
The never sell theory is that properties go up in the long term, so why kill the goose that lays the golden egg?
If you go overseas you may still need to lodge a tax return – you may have income or a loss in Australia for example.
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
ahhh, capitalised interest…..?
please explain the concept to myslef and all the other folks who im sure as equally confused as me.
DS
In essence rather than servicing the debt each month the interest is added to the original loan amount hence the debt gets bigger and bigger.
Ideal when price appreciation is greater than the interest being capitalised but no so good in a stagnant or declining market.
Richard Taylor | Australia's leading private lender
But Richard, it done correctly it can still be good in a stagnant market as you can pay off non-deductible debt faster and get bigger deductions – so overall loan is the same size – of course it can't look like a scheme to reduce tax though!
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
Oh yes totally agree Terry but as you say "done correctly" is the main criteria.
Not
a
Richard Taylor | Australia's leading private lender
Oh yes totally agree Terry but as you say "done correctly" is the main criteria.
Not
a good
Richard Taylor | Australia's leading private lender
Oh yes totally agree Terry but as you say "done correctly" is the main criteria.
Not
a good one
Richard Taylor | Australia's leading private lender
Oh yes totally agree Terry but as you say "done correctly" is the main criteria.
Not
a good one for
Richard Taylor | Australia's leading private lender
Oh yes totally agree Terry but as you say "done correctly" is the main criteria.
Not a good one for clients just intending to live of equity.
Richard Taylor | Australia's leading private lender
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