Using a new loan to pay for interest of an IO investment loan.

Discussion in 'Accounting & Tax' started by Byeow, 15th Jul, 2016.

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  1. Byeow

    Byeow Active Member

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    Hi
    Is it ok from ato view to take a smaller new loan to pay for interest of an IO investment loan?
    And the interest on both the loans are tax deductible?

    Thanks
     
    Byeow, 15th Jul, 2016
    #1
  2. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    Possibly........ capitalising interest.

    Possibly if you dont have a PPOR

    Id certainly be seeking very specific tax advice from a qualified pro, not peops like me :)

    ta
    rolf
     
    Rolf Latham, 15th Jul, 2016
    #2
  3. Paul@PAS

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

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    Rolf raises a very good point. The ATO have concern about any arrangement that seeks to maximise deductible interest while non-deductible debt is minimised. The consequence they argue is a scheme and so the arrangement can lead to denied deductions. In general terms the ATO consider capitalisation of interest a scheme unless there is a logical purpose/ eg construction period finance, maternity leave, unemployment etc

    That doesnt say its not do-able. For example a temporary arrangement during maternity leave etc. But where you do it solely for the purpose of drawing a loan down to capitalise then it can pose a concern.

    Personal advise is required
     
    Paul@PAS, 15th Jul, 2016
    #3
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  4. Terry_w

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

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    Terry_w, 15th Jul, 2016
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  5. Byeow

    Byeow Active Member

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    Thanks All!
     
    Byeow, 15th Jul, 2016
    #5
  6. Jamie Moore

    Jamie Moore MORTGAGE BROKER - AUSTRALIA WIDE Business Member

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    Hi @Byeow - get specific advice that's catered to your circumstances. A pro accountant like Paul above would be a very good start.

    Cheers

    Jamie
     
    Jamie Moore, 15th Jul, 2016
    #6