Best way to finance a special levy?

Discussion in 'Loans & Mortgage Brokers' started by Ouchmyknees, 24th Oct, 2019.

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  1. Ouchmyknees

    Ouchmyknees Well-Known Member

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    Hi brain trust,
    I’ve got a sizable special levy for my investment property coming up so just trying to figure out the best way to finance it to receive the most tax benefit?
    Option 1: redraw from one of the splits of the ppor loan. Am I correct to assume that the interest is deductible since it is for investment purpose? The main drawback of this option is that I can’t use the split for other purposes (to avoid contaminate the split?)
    Option 2: I can borrow money from my parents who live overseas. The major benefit is that we can agree on a low interest rate and I can repay the principal at the end of the loan term (say 5 years) so less financial pressure on me. Just not very sure how ATO will see this type of related party transaction?

    Thanks heaps!
     
  2. Archaon

    Archaon Well-Known Member

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    Make another split on your loan?
     
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  3. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker Business Member

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    1. Yes, interest can be deductible if you directly borrow for this. Split first
    2. Yes, interest can be deducitble if borrowing from parents under a written loan agreement. But you will need with withhold tax or cannot claim the interest.

    Tax Tip 37: Withhold tax on interest you pay to overseas entities Tax Tip 37: Withhold tax on interest you pay to overseas entities
     
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  4. Paul@PFI

    [email protected] Tax Accounting + SMSF Business Plus Member

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    Or the parents can lodge an Australian return. The ATO will assess witholding that way or through the payer remitting it
     
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  5. Propertunity

    Propertunity Exclusive Real Estate Buyers Agent Business Member

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    How about option 3 where the OC (or BC) takes out a commercial loan for the works and bills the unit holders?
     
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  6. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker Business Member

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  7. Paul@PFI

    [email protected] Tax Accounting + SMSF Business Plus Member

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    Many BC wont do this as it involves complex financing and is generally unsecured and limited by state laws. And it can be expensive as last resort finance. Its sometimes used where a few owners cant raise finance leaving other owners unable to proceed with critical and essential works. The owners with lack of finance will pay a special levy to a special sinking fund for this purpose. None of the interest is deductible to those owners. The owners incur a levy and they do not incur interest as such. The nature of the payment is considered capital. There is no loan agreement between owners and the strata

    Strata Finance: The guide for Owners Corporations
     
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  8. Depreciator

    Depreciator Moderator Staff Member

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    What is the SL for? How long have you owned the property? The answers to those questions will help determine how you claim the payment.
     
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  9. Paul@PFI

    [email protected] Tax Accounting + SMSF Business Plus Member

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    Yes, after the works are completed each owner should also obtain a revised QS report. The extent of the elements of the existing structure that may be replaced (scrapped?) and the new works may produce improved Division 40 deductions including that of common property. I generally refer each owner to their specific QS as the cost of structural works does NOT the complete tax benefits available.

    The levies themselves arent something a tax adviser can use as a cost of construction. And special levies are generally capital in nature and not deductible.
     
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