tax deductible costs of investing

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Chris2012
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@chris2012
Join Date: 2012
Post Count: 6
October 20, 2012 - 5:04 am
Gday forum. I have a stand alone interest only home loan for my investment property that I keep totally separate from my other finances as not to mix deductible debt with non deductible debt.
My question is can I pay investment cost eg, rates, water, insurances out of this investment account and not stuff up my interest deductibility.
Thanks in advance!
PLC
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@plc
Join Date: 2012
Post Count: 400
October 20, 2012 - 11:58 am
Hi Chris,
Someone else can confirm, but I believe that if you borrow funds from a dedicated investment LOC to pay for investment expenses, then any interest associated with the expenses is also deductible.
Cheers
Tom
PLC | Phoenix Loan Consulting
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Catalyst
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Join Date: 2008
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October 20, 2012 - 9:28 pm
If it's an IO loan why is there extra money in there? You can do it though if the money is there. It is all investment related so no crossover problems.
I have a separate LOC account that all rent goes into and interest (for other loans) and bills get paid out of. I find this keeps everything tidy and easy for accounting purposes. If I need to check up on a bill I only have to check one account.
The stand alone loans just have interest going in from the other account and interest out (to the bank) each month so it always stays the same.
Scott No Mates
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October 20, 2012 - 9:51 pm
Its a bit of a messy question. Are you considering redrawing your loan to pay bills? taking money out of an offset account or other account? Using an LOC?
Chris2012
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@chris2012
Join Date: 2012
Post Count: 6
October 20, 2012 - 11:22 pm
We had the property revalued and extended to loan ready for our next purchase.
Could I pay the council rates of the IP, which is a tax deductible expense, from these borrowed funds?
Scott No Mates
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@scott-no-mates
Join Date: 2005
Post Count: 3,856
October 21, 2012 - 12:24 pm
The things to watch are that you aren’t cross collateralising your properties ie using the first as security for the second hence the LOC.
You should be able to pay the expenses from the loan.
Terryw
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October 21, 2012 - 9:51 pm
Chris2012 wrote:
We had the property revalued and extended to loan ready for our next purchase.
Could I pay the council rates of the IP, which is a tax deductible expense, from these borrowed funds?
Yes you can. But the important question is how do you get access to the funds?I
If you transfer to a cheque account to write a cheque then the answer would be "possibly not".
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
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Derek
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October 22, 2012 - 12:38 am
Chris2012 wrote:
We had the property revalued and extended to loan ready for our next purchase.
Could I pay the council rates of the IP, which is a tax deductible expense, from these borrowed funds?
Hi Chris,
Taking a bigger picture look at your proposal.
Tax deductibility with the caveats mentioned above will generally be fine.
But take a peak at what you are proposing.
You originally set up the LOC facility to fund additional purchases or, in other words, to build and create additional wealth. Now you are looking at spending some of that LOC to carry some existing property expenses. In effect you are eroding your wealth using equity this way. If you continue to use your LOC in this manner, and your home does not increase in value your LVR is increasing and your net wealth position has deteriorated.