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Peter A.
Peter A.
Morphett Vale, SA
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Six years ago, I took out a residential property investment loan over two like properties, one of which is my residence, the other rented. Three years ago, I ended the tenancy of the rental property, and swapped properties ie rented my original residence. Up to that point , my loan interest was deductible. When I swapped homes I have been advised I cannot claim any of the home loan interest, only maintenance costs. I think this is incorrect advice as the loan is non-specific? Thank you!

6 years ago

Responses

Hi Peter,
I’m not a tax accountant but it is possible that it is true. If you claimed the whole loan against the investment property and had no loan against your primary residence, you can’t change the allocation of the loan once you change your primary residence. The same is true if you say had $300,000 against the investment property and $100,000 against the primary residence and you have now paid off the $100,000. You can’t then claim previously borrowed money on a different property.
The answer is to likely to be that you either move back in to the original residence and rent out the original investment again or sell the previously primary residence and borrow to buy another investment property.
You can check these with another accountant or the ATO against your specific circumstances but I think you will find the advice you received was correct.
Best of luck with it
Regards
Scott

6 years ago

Thanks Scott. I take your point and understand it, however, the investment loan is over the two properties. My view is it should not matter which one I choose to rent out or reside in.
Regards
Peter

Hi Peter.

the thing that will determine whether or not the interest is deductible is the PURPOSE of the loan in the first place.

from what I am reading, you have a SINGLE facility, over TWO properties. One is rented and the other is not.

clearly the PURPOSE of the borrowing is twofold: 50% for property A and 50% for property B. (or 60/40, or something depending on cost)

when property A becomes your rental property, then the income is assessable, and the expenses including interest is deductible.

so if you move from A to B, or from B to A, then the interest that pertains to the property which has become your rental property will be deductible.

The whole thing would have been a LOT neater and cleaner had you been advised to get a split facility that clearly shows what portion of what loan belongs to what property.

You have got some complicated CGT issues now arising from moving from one house to the other, and I STRONGLY advise you find yourself a CA or CPA who knows what they are talking about. Dont go to one of those shonk artists who profess to be experts after a 3 day course.

the answer is definitely NOT to sell up and buy another one!!!! why load yourself up with CGT, agents fees, legals and stamp duty on the new property???? The only reason to sell should be so that you can realise the gain for another purpose, such as retirement or a new investment. If you sell one house to immediately buy a similar house in the same area, then you have just loaded up on costs and tax for no net gain!!!!

And lastly, never ever ever EVER ask the ATO for advice about tax. the ATO is not there to provide you with advice, and they dont WRITE the legislation, so you will only get their interpretation of what they think it is. And they are wrong more often than you think.

Get yourself a QUALIFIED and EXPERIENCED accountant who can guide you through the investment property maze you are in.
cheers
Brendan

6 years ago

Hi Brendan. Thank you so much for that advice. You have confirmed that whichever is the rental property under the single loan facility, that property carries the tax deduct-ability for costs including loan interest and fees. I agree I should now transfer my accounting to a tax specialist professional in rental and negative gearing who would be a certified CPA. Although I queried it with my accountant, the last three years has seen my interest unclaimed. Much appreciated.

Comments

Hi Peter. I think you have missed my point. some of the loan is property A and some of the loan is property B. the interest doesnt just go to the one that is rented out. the loan is DUAL PURPOSE, and hence the interest needs to be allocated accordingly.

some of the interest applies to property A
some of the interest applies to property B

whichever of the properties is being rented out has to report assessable income and allowable deductions, including the SHARE of the interest that pertains to that property. NOT 100% of the interest!!!!

there is a case called Harts Case which is the leading reference in these matters

if you have been claiming 100% of the interest up until now then that is wrong
if you have been claiming none of the interest up until now that is also wrong.

you might have some additional issues: being that you can only amend returns going back 4 years.....even more reason to find a CA or CPA to help you out.

shoot me an email Peter, we can take this offline and I might be able to give you more specific advice.

Brendan

6 years ago

Thanks again Brendan. I did miss a main point. I will connect with email and give some more detail. I cannot believe I am getting this much help to understand my position.
Cheers.
Peter

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