Borrowing money to pay land tax

Discussion in 'Accounting & Tax' started by Harry30, 27th Mar, 2018.

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  1. Harry30

    Harry30 Well-Known Member

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    If a person has 2 expenses to pay, $30k for private school fees and $30k for a land tax bill (associated with income producing IPs). Person has only $30k set aside so will need to borrow $30k extra to pay both bills. The person should pay the private school fees out of own funds and borrow to pay IP expenses (land tax). Interest on borrowing to pay deductible expenses is in itself tax deductible? Correct?
     
  2. Scott No Mates

    Scott No Mates Well-Known Member

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  3. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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  4. Harry30

    Harry30 Well-Known Member

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    Interesting stuff. In my example, the person does not have the money to pay both expenses. He must borrow, so arguable whether a tax deduction is the dominant purpose. His normal practice is to borrow the money for the land tax on the credit card (60 days interest free) and pay off the CC in full when he gets his tax return. He has never claimed a deduction on the interest before, so this it is not anything that is ‘systematic’ (and this is the only IP expense in which he borrows money for). All other expenses, he just pays for using his weekly salary. So, as a once off, and with a commercial purpose for borrowing, not entirely clear it would caught by the provisions mentioned. And can I just say, I faithfully described the facts here without prior knowledge of the relevant jurisprudence (as lawyers are so fond of saying).
     
  5. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    I would probably suggest that he borrow to pay the land tax and claim the interest - if he was my client.
     
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  6. Harry30

    Harry30 Well-Known Member

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    Terry, I think you are right. And that is even without Garfield Barwick on the High Court.
     
  7. Paul@PAS

    Paul@PAS Tax, Accounting + SMSF + All things Property Tax Business Plus Member

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    What would the HC influence be ? If you have any uncertainty start with a binding private ruling ...Darryl Kerrigan.