Interest on Borrowed Funds to Pay Stamp Duty

Discussion in 'Accounting & Tax' started by Shamrock1, 20th May, 2020.

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  1. Shamrock1

    Shamrock1 Well-Known Member

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    If I pay a 20% deposit and Stamp Duty for an IP out of the offset account on my PPOR, assuming there are no other transactions in/out of the offset account, can I claim the interest relating to the payment of Stamp Duty? Or can I only claim the interest on 20% deposit?
     
  2. Terry_w

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

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    No
     
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  3. Terry_w

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

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  4. Paul@PFI

    [email protected] Tax Accounting + SMSF Business Plus Member

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    You really want a loan split. THEN draw the new amount out. This can be fixed now
     
  5. Shamrock1

    Shamrock1 Well-Known Member

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    Thanks Terry. Should have clarified i have just refinanced my PPOR and now have a separate split offset account which i will ONLY use for the next IP purchase. Interest on Deposit and/or Stamp Duty deductible in this scenario?
     
  6. Shamrock1

    Shamrock1 Well-Known Member

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    Thanks Paul. I have just refinanced and now have a separate loan split with offset which i am going to draw on for next deposit + maybe stamp duty. Interest on the Deposit would be deductible now wouldn't it? Just wasn't sure about interest on the stamp duty.
     
  7. Terry_w

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

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    No
     
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  8. Shamrock1

    Shamrock1 Well-Known Member

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    Hmmm what am I not understanding? New Loan split with offset facility for the purpose of IP deposit only. Offset won’t be mixed with any private use of funds. What is the specific reason for interest not being deductible?
     
  9. Terry_w

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

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    You need to borrow money for interest to be deductible.
     
  10. Shamrock1

    Shamrock1 Well-Known Member

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    Yes it’s obviously not deductible until I use the funds. Interest only Loan which has settled and I’ve just transferred the funds into the offset so $0 interest payable at the moment. Once I use funds for the 20% deposit interest will be deductible though do you agree? If I use more of the offset funds to pay stamp duty for say $25k is interest on $25k deductible as well?
     
  11. Terry_w

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

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  12. Shamrock1

    Shamrock1 Well-Known Member

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    Yes I have borrowed and parked in offset. Thanks for the link to Tip 1 this explains all sorts of scenarios re offset funds and deductibility. Is there any reason if I use offset funds to pay stamp duty i couldn’t claim the interest on the stamp duty funds?
     
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  13. Terry_w

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

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    Yes - all explained in tax tip 1.
     
  14. Paul@PFI

    [email protected] Tax Accounting + SMSF Business Plus Member

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    I also get asked if its OK to take borrowed $$$ from personal names and in place of depositing it into a trust that then buys a property - Can I just pay the solictor directly? No way. Its critical that borrowed money is always moved along the chain. Skipping steps can expose a challenge.. Yeah its not convenient but if the ATO or OSR or a court look at it and question the source and application of funds you dont want complex explanations. Keep it simple and follow the chain.
     
  15. KayS

    KayS Member

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    Hi All
    I appreciate that stamp duty is not a claimable expense, but is used in calculating the cost base of property.

    If you borrow funds to pay the stamp duty for an IP (eg.LOC), is the interest on borrowed funds to pay stamp duty claimable?

    Thanks
     
  16. Paul@PFI

    [email protected] Tax Accounting + SMSF Business Plus Member

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    Yes. Interest is deductible where borrowed funds are used to acquire a property, pay acquisitioon costs, improve, maintain and renovate or to pay MOST outgoingsincurred to produce income. There is one exception. The ATO generally dont consider additional interest to be deductible when borrowed money is used to pay loan amounts where it capitalises. This is a Part IVA issue and may evidece a schem to produce tax benefits. Where it is a temporary basis eg COVID unemployment for example it is acceptable.

    ACT duty IS deductible on acquisition.
     
  17. Terry_w

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

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    Yes it generally would be
     
  18. KayS

    KayS Member

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    Thanks Paul and Terry for responses.
    Been reading up on Capitalised Interest, interesting views around. (no pun intended :)