Income producing business with PPOR

My wife and I have a long term dream of owning a hobby farm which would act as a business for yoga/massage/health retreat holiday accommodation.
Two or more dwellings, one being segregated as our PPOR and the others let out as business/accommodation.

I have planned to build a portfolio to one day provide enough equity to purchase this property, something within 2 hours of Sydney roughly 2-3 million?

I was hoping for some clarification on the deductibility of this, I would expect that the property would need to be valued somehow and split into PPOR / Business portions, which I could finance in separate loan accounts, one being deductible and the other not.
Is this correct and what would the process be?

Can I then move all money currently offsetting our IP's out and move it to offset the entire PPOR portion, leaving only deductible property portfolio and the deductible loan of the business?

We are edging closer toward our goal and I need to start working towards clearly defining the path we take and start setting some goals and a timeline.

 

People with waaayyyy more knowledge will come in and help out on this but I do know that only 2 acres is counted for PPOR and CGT exemption so you need to think physically as well as financially

 

Taxation Ruling IT 2601 in paragraph 12:

12. In certain cases, such as Carberry, a single asset (such as land with a single title) may be capable of being properly regarded as having been notionally divided between a part acquired with a business purpose and a part acquired with a non-business purpose. In such a case, borrowings may be properly regarded as relating to the notional part of the asset acquired for a business purpose and a deduction will be allowed for the full amount of interest paid in respect of the borrowings.


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See Cranberry’s case, Federal Commissioner of Taxation v. Carberry, Federal Court of Australia, 14 November 1988 ATC 5005 CCH iKnow | Australian Tax & Accounting

 

And the non commercial loss rules then impact and NOT the usual negative gearing rules..

That and CGt and GST issues mean tax advice would be advised.

 

In addition to possibly needing to be positively geared (Division 35) as Paul indicated ...

Separate/split loans with common security plus selectively paying down the PPOR loan while capitalising interest on the investment loan may cause Part IVA headaches (Hart's case, also TD 2012/1 as examples).

Needs careful management.

 

Thanks for the advice, so I suppose this should be achievable with the correct management. Fortunately I have a good accountant @Paul@PFI

 

What about the same thing with no capitalising of interest?

 

Not aware of any ATO position regarding 'debt recycling' without capitalising interest.

Basically, the Commissioner must have regard to the surrounding circumstances of the scheme to form an opinion of a dominant purpose of obtaining a tax benefit. So the less contrived the arrangement appears, other than for obtaining a tax benefit, then the better.

You might want to trawl through the pbr register to see if anything is similar to your proposed scheme ?

Sadly, many pbr applications have not been prepared in a robust manner (i.e. DIY or just using a tax agent rather than a tax lawyer) and so the Commissioner is not 'pinned down' on the Part IVA decision.

 

Thanks Rob. I've noticed a few recent capitalising interest PBRs where the question was is the interest deductible and the answer was 'yes', but the second question, the most important, wasn't asked: "will the commissioner apply Part IVA to deny the deduction?"

 

And all PBRs address full disclosure but IMO few are truly honest and explain they sought to maximise deductions