Deduction for interest

Discussion in 'Accounting & Tax' started by Beano, 5th Jan, 2021.

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  1. Beano

    Beano Well-Known Member

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    If you offer a property rent free or rent paid for 99 years can you still claim the interest ?
     
  2. Terry_w

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

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    if there is no income nothing can be deducted. If undermarket income the deductions will need to be apportioned.
     
  3. Beano

    Beano Well-Known Member

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    Prepaid rental ?
    The aim is to sell leasehold as close to freehold as possible.
    Market rental can be almost anything as the price/outgoings sets the other variable
     
  4. Terry_w

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

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    under s8-1 a deduction needs to be connected to income to be deductible and can't be capital in nature.
    So if you buy a property and sell a lease over it that would probably be capital in nature.
     
  5. Beano

    Beano Well-Known Member

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    Generally, interest incurred by most companies is deductible, subject to thin capitalisation, restricted transfer pricing, and anti-hybrid rules (see the Group taxation section).
    I will follow up on this article from PWC on interest deductibility by companies Terry.
     
  6. Terry_w

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

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    Your link don't work Beano
     
  7. Beano

    Beano Well-Known Member

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  8. Mike A

    Mike A Well-Known Member

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    that paper deals with New Zealand taxes.
     
  9. Beano

    Beano Well-Known Member

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    Yes
    I would like to see the ATO treatment too as I have the choice of deciding which country I invest in !
    (Like most of us we have a choice of what and where to invest!)
     
    Last edited: 5th Jan, 2021
  10. Beano

    Beano Well-Known Member

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    Hi Terry
    There are several complexes that have rental free/prepaid for up to 149 years which I will I download the lease (being registered leases they can be downloaded) and refer to PWC.
    There will be several benefits of a medium term lease in that the value is close to freehold
    Also means the next generation will not be spoilt with too much income :p
    The income will skip two generation :eek:

    Quote : Michael Anello, the general manager of ValueCorp, a company that specialises in real estate valuations, agrees. ”The ones on 99-year leases are treated like they’re in perpetuity because there’s such a long time to run,” he says. ”They don’t usually get discounted because of the leasehold factor.”
    Unlike other cities such as Canberra or London, and in many parts of Asia, leasehold properties in Sydney are relatively rare. Away from Bower Street, many of the leasehold properties are built on prime harbourfront land and so are highly sought-after. Given their location and luxury appointments, these apartments also command high prices.
     
  11. Mark F

    Mark F Well-Known Member

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    Ah the beauty of having cake and getting to eat it as well :rolleyes:

    Bit like Canberra where all residential land is 99 year lease.
     
  12. Mike A

    Mike A Well-Known Member

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  13. Terry_w

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

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    I still don't get what you are trying to describe.

    Are you saying you will buy a property and borrow to do so and then grant a 99 year lease but still want to claim the interest?

    Long term leases are treated as a CGT asset and it is similar to selling the legal interest in the property.
    If you buy and a receiving rent from a lease you can claim interest on money used to buy the property.
    But if you have granted a long term lease then this has transferred an equitable interest in the property so I would imagine you could no longer claim the interest on the loan, or perhaps a very small portion. You will probably need to reduce the loan by the capital proceeds received from the granting of the lease.
     
  14. Beano

    Beano Well-Known Member

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    Thanks Mike and Terry.
    Seems like sticking to NZ that has no CGT is the way to go !
     
  15. Terry_w

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

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    But Australia will tax you on the NZ capital gains.
     
  16. Beano

    Beano Well-Known Member

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    I hope not as I am a temporary tax resident
    Foreign income exemption for temporary residents - introduction

    When in Australia

    And the properties in NZ are owned by a company which I am not a shareholder.
    (Structure was advised by PWC NZ and Australia)
     
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  17. Terry_w

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

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    that is a whole different kettle of fish!
     
  18. Mike A

    Mike A Well-Known Member

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  19. Paul@PAS

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

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    Bizarre post. PWC are advising but PC becomes a better advice solution ?

    If you offer a property rent free or rent paid for 99 years can you still claim the interest ?

    No. The interest is not incurred to produce assessable income and the owner has a capital event which effectively disposes of the property use rights. Not even sure how a loan could exist for a borrowing to buy a property with no use, no income etc. It is also potentially subject to NZ GST. I got that right ? PricewaterhouseCoopers. ? The tax advisory firm ?
     
  20. Mike A

    Mike A Well-Known Member

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    if they are a temporary resident, and many NZ's living in Australia are, then CGT will not apply to any non taxable Australia property (such as a NZ asset) except in very limited circumstances. NZ residents come on a 444 visa and that is a temporary resident visa.
     
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