Loan interest deductible after sale

Discussion in 'Accounting & Tax' started by Sticky, 9th Oct, 2018.

Join Australia's most dynamic and respected property investment community
Tags:
  1. Sticky

    Sticky Well-Known Member

    Joined:
    2nd Jul, 2015
    Posts:
    73
    Location:
    Melbourne
    Hi All,

    I have IP1, which I used an equity split for deposits for IP2 & IP3.

    So I have
    IP1 loan
    IP1 equity split (deposits for IP2 & IP3 paid from here)
    IP2 loan
    IP3 loan

    I have now sold IP2, however the proceeds after IP2 loan are not enough to completely pay out the IP1 equity spilt.

    Is the full loan interest on the split still deductible, now that I do not own IP2 anymore?

    Thanks
     
    Sticky, 9th Oct, 2018
    #1
  2. Terry_w

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

    Joined:
    18th Jun, 2015
    Posts:
    42,005
    Location:
    Australia wide
    it could be
     
    Terry_w, 9th Oct, 2018
    #2
  3. jazzsidana

    jazzsidana Well-Known Member

    Joined:
    27th Jan, 2018
    Posts:
    459
    Location:
    Melbourne
    You would have paid CGT on IP2, correct?

    If I got this right, it should be tax deductible.. Your accountant should be able to nail this one over quick phone call!..

    Cheers,
     
    jazzsidana, 9th Oct, 2018
    #3
  4. Terry_w

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

    Joined:
    18th Jun, 2015
    Posts:
    42,005
    Location:
    Australia wide
    Not sure how CGT is relevant for this situation.
     
    Terry_w, 9th Oct, 2018
    #4
  5. Mike A

    Mike A Well-Known Member

    Joined:
    24th Jun, 2015
    Posts:
    2,656
    Location:
    UNIVERSE
    How does CGT impact interest deductibility ? and without knowing all the facts how would one know that a quick phone call would resolve the issues.

    Been in the game a while now and seen one quick phone call cost clients hundreds of thousands of dollars.
     
    Mike A, 10th Oct, 2018
    #5
    Angel likes this.
  6. Angel

    Angel Well-Known Member

    Joined:
    19th Jun, 2015
    Posts:
    5,816
    Location:
    Paradise, Brisbane
    Call your accountant to make an appointment so you can give them all the details and have a proper conversation.
     
    Angel, 10th Oct, 2018
    #6
    Marg4000 likes this.
  7. Paul@PAS

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

    Joined:
    18th Jun, 2015
    Posts:
    23,555
    Location:
    Sydney
    The CGT disposal (not tax itself) does relate to the deductibility in a reverse kind of way.

    In its simple form, if a disposal of a CGT interests occurs then the loan interest associated with its acquisition etc ends. However if the full CGT proceeds from the sale are less than the sum borrowed then the remaining loan may continue to be deductible after the CGT proceeds are received and allocated to reduce loans.

    Choosing not to payout the loans is a different issue. That would leave the loans non deductible from that time.

    And the blended loan issue with the IP1 equity split (deposits for IP2 & IP3 paid from here) doesnt assist.

    You will also need to retain evidence that the original loans split for IP2 and the bledned nature is etained moving forward as you would need to be able to demonstrate in the future that the CGT proceeds where not sufficient to payout the IP2 loan and the portion of IP1 split that relates to Ip2.

    The proposed laws to end "rentvesting" and the proposed ALP policies may also impact this space and may contain specific provisions that prevent property related deductions in some instances...in the future... Who knows.
     
    Paul@PAS, 10th Oct, 2018
    #7
    Marg4000 and Mike A like this.
Property Tax Specialists – Enquire Today

Price Accounting provide investor + developer tax services world and Australia wide for your property and all tax issues. Contact Paul@PFI below for our new client pack and quoted pricing + client portal access. Trusts, Co and SMSF are our specialty.