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Can I pay my credit card with a LOC and claim the interest?

Discussion in 'Accounting & Tax' started by nambis, 4th Jan, 2016.

  1. nambis

    nambis Member

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    I recently paid $806 by credit card to replace a fridge in an IP. The credit card debt is due soon so I'll pay the $806 debt using funds drawn from a Viridian LOC. Can I claim the interest on the LOC? The LOC is only used for investment purposes, nothing personal.

    The only other debt on the credit card is $500 for personal use but don't think it's relevant if I pay exactly $806 before the due date.
     
  2. D.T.

    D.T. Adelaide Property Manager Business Member

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    Is IP in your own name? I'd think this would come under the reimbursing yourself rules (ie you can't) but am happy to be corrected.
     
  3. nambis

    nambis Member

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    Yes IP is in my name only. Can you please elaborate on these 'reimbursing yourself' rules.
    I see Terry has written something here about using credit cards for IP stuff but if I pay the $806 from a LOC before the card is due then maybe it's OK?
    Tax Tip 12: Credit Cards and Tax Issues
     
  4. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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  5. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    No ok as your credit card loan is mixed. if you paid $806 into the card, part would come off the $500 private debt too.
     
  6. nambis

    nambis Member

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    Thanks Terry, I thought that if I paid exactly $806 into the credit card then it should be obvious to the ATO that I'm paying off the fridge debt and none of it is intended to come off the private debt.
     
  7. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    That is not logical. Say you had a bottle of water with 200ml of milk deposited into it. You cannot say you will take out 200ml and intend it to come off the milk portion.

    Similar with a mixed loan. You cannot deposit and say you intend that the deposit comes off a certain portions. You would need to unmix it first.
     
  8. nambis

    nambis Member

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    I think it's logical if I'm paying exactly $806 (same price as fridge) and my card always gets paid out in full every month.
     
  9. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    In the example above, if I replaced the word 'milk' with 'urine' would you drink the water after removing 200ml of 'urine'?
     
  10. Marg4000

    Marg4000 Well-Known Member

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    You may make your life far easier if you get a separate credit card exclusively for IP expenses.

    As Terry has said, you can't unscramble eggs.
    Marg
     
  11. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    It was masterchef Rolf that first used the egg analogy. My claim to fame is the urine one.
     
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  12. nambis

    nambis Member

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    So if I didn't have the $500 of private debt on the card then I could claim the interest on the LOC?
     
  13. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    If there was only property related debt on the credit card, and there have been no repayments of non property related debt since the property debt was incurred then it is possible to refinance that loan with another loan. The refinancing won't change the deductibility of interest.
     
  14. TMNT

    TMNT Well-Known Member

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    I know as much tax laws as my next door neighbours cat, but I thought it was all about intention,

    for example, if your best friend gave you $10k cash back from a loan you gave him as a 10 year old, then the ATO might flag it as income, however, if you do have evidence then it cant be classified as tax able income

    or if you have a secret stash of $1 and $2 coins accumulating over hte years and one day you depsoit it and its thousands, however you have technically already paid cash on it so you cant be taxed again'

    and all this talk about contamination and mixing milk/urine, which I understand is the law, however reversing the situatiuon, well you could say the same as your personal income, if you have payg, share dividend, rental income, casino winnings, all into personal account, gambling expenses, alcohol expensves then this should all be classifeid as one income!?!?!?!!?
     
  15. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    It is not down to intention, but to substance. Repayment received for money lent is not income but return of capital. Putting different types of income into one account doesn't change the type of income the income is, dividends remain as dividends and are taxed as such.
     
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  16. York

    York Finance Broker Business Member

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    The whole point of keeping things separate is to ascertain the treatment of them come tax time. If you mix 'urine with milk' the treatment of that from a tax point of view is almost impossible to ascertain. Hence why we keep different loans for different purposes separate.

    In the case of income, if the different kinds of incomes are all lumped into one account including PAYG, dividends, rental income and then you throw in casino winnings and proceeds from selling your car then you have an account with mixed funds. The only difference between this and the 'urine/milk' loan is that when it's tax time, no one will look at that account as the primary source of working out your income. That primary source would be your PAYG Annual Summary (Group Certificate), dividend statements, rental income statements etc. So calculating income for tax purposes is done via other source documents. Whereas interest deductibility is calculated directly from loan statements. But if there is urine in that milk, how much of that is drinkable? (deductible).