Nick is a Chartered Accountant, Registered Tax Agent, Registered Company Auditor, and Justice of the Peace . He is an authorised Representative of The Salisbury Group Pty Ltd (Number 234886) Nick holds a Bachelor of Commerce, majoring in Accountancy, and speaks at numerous seminars across the Country in relation to efficient tax structuring and wealth creation.
(Incorrect) Strategy: Deposit all of your salary on to a line of credit to save interest. Result: Some interest on Investment property loan is disallowed based on private drawdowns.
The following case illustrates the importance of separating your investment loans from your private funds.
Strategy: Deposit all of your salary on to a line of credit to save interest.
Result: Some interest on Investment property loan is disallowed based on private drawdowns.
WARNING!!!
DO NOT COMBINE PRIVATE TRANSACTIONS WITH INVESTMENT LOAN FACILITIES.
Domjan v FC of T
The AAT has held that not all of the loan interest incurred by a taxpayer on a joint facility used to finance three rental properties was deductible. In particular, the portion of the interest relating to funds drawn down from the loan facility and used for private purposes was not deductible.
Interest on drawdown funds
However, the taxpayer and her husband made private deposits, consisting of a gift from the taxpayer's mother and the husband's retrenchment payout, and also made 10 "private" drawdowns from the loan facility.
The taxpayer argued that in redrawing the funds, she was merely accessing her own private funds. However, the Commissioner considered that the amounts redrawn constituted a new borrowing in accordance with Taxation Ruling TR 2000/2.
The AAT found the loan documents supported the Commissioner's view that the amounts available to the taxpayer to be redrawn did not stand as a credit in the loan account and that redraws amounted to new advances. Accordingly, the interest incurred on the drawdowns used for private purposes was not deductible.
Recoupments
The AAT upheld the Commissioner's view that where repayments of principal are made to a mixed purpose loan account, the payment is applied proportionately to reduce the balance of the outstanding principal attributable to the income producing and non- income producing use.
If you are depositing your salary and wage income directly into a Loan or Line of Credit that is used predominantly for investment purposes you should seek immediate advice in light of the above decision.
If you redraw those funds for private expenditure the interest may no longer be 100% tax deductible.
Please do not hesitate to contact our office should you require assistance if this could relate to you.
Nick Moustacas
T: 02 9580 3353
E: info@strategicwealth.com.au