Tax deduction for interest

Discussion in 'Accounting & Tax' started by Pash81, 23rd Jan, 2020.

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  1. Pash81

    Pash81 Well-Known Member

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    Hi wise people.

    Just wanted to ask a quick question.

    I have one property and 2 loan accounts against that. One was for $300k and other one for $30k. Both P&I repayments.

    Current Balance for 2nd loan is around $29k as few payments have been made already. $1000 paid back includes so.e interest and some principal.

    Now question is that if I deposit $29k into this loan account and then redraw again to buy shares, will I be able to get a deduction of the interest charged to this account from now onwards??
     
  2. Paul@PFI

    [email protected] Tax Accounting + SMSF Business Plus Member

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    If all the funds newly borrowed on the redraw are then directly used to acquire income producing shares the interest should be deductible against the share income for that loan split. If you buy shares on spec to resell at a profit you will make a mess of that loan as it would have a blended purpose. Interest on shares to resell for profit etc is not deductible but may reduce any profit on sale.

    I would be checking your lender permits a full repayment with a subsequent redraw. Some lenders automagically close the loan if it hits $0
     
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  3. Terry_w

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

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    And if by the word "I" you are referring to the same person - the borrower is the owner of the shares.
     
  4. Pash81

    Pash81 Well-Known Member

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    So if I deposit $28,999 to this account so as not to close it automatically and then redraw this amount to buy shares then I would be able to deduct the interest charged against the share income?

    I assume if I sell the shares at some point them I will have to pay this loan back with the sale proceeds? Is there any time frame before which the shares should not be sold for.profit? I mean I will sell the shares at some.pointnin time.in the future.

    What will happen to the interest already charged to this account in the last month or till the date I buy the shares? Just ignore it and calculate the interest charged after I buy the shares?

    Another question is how to get the funds transferred from the loan account to the share trading account as internet transfer direct from the loan account is not allowed?
     
  5. Terry_w

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

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    If you sell the shares you don't have to pay the loan back as the security for the loan is not the shares. But you cannot claim the interest any more. If you sell mid loan month you would have to apportion the interest.

    See tax tip 1 for your last paragraph. It has been covered there in depth. It seems you just want someone to say it is ok when you know it is not!
     
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