Distribution Accounting Query

Hi,
Currently, my Navra distributions are re-invested. However, I may need, at some stage, to have some or all of the distributions taken in cash and used to reduce the LOC used to purchase units in the fund. That doesn't appear to be any problem.
If, however, I wished to use some of the distributions for personal/private use, does that constitute a 'tainting' (for tax purposes) of the LOC account?
Not sure how this is viewed by the ATO, and unfortunately my accountant is unavailable at the moment.
Any help much appreciated.
Jayar

 

Easiest way to work through it is to separate it into steps:
Distribution Income: This is taxed exactly the same way, whether you reinvest it, put it on a deductible/non deductible LOC, or spend it on hats. Once the money is distributed by the fund, it makes no difference what you do with it, you still have to pay the appropriate tax on it.

LOC: If the LOC funds were used to purchase income producing assets, then the interest on the LOC is generally fully deductible. If you used some for purchasing income producing assets, and some for purchasing hats, then you will need to proportion the deductible interest.

I think what you are getting as is whether the interest on the LOC will still be deductible if you use the income from the investment for private purposes. The interest is deductible because it was used to produce a taxable income. once that income has been produced and taxed, you can do whatever you like with it. There is no rule that says income produced from an asset must be used to pay off any debt relating to that asset, any more than there is a rule stating that all your spare employment income must be used to repay debt. It is your income, and you can do what you want with it. As long as the purpose of the debt hasnt changed, the costs associated with it will be deductible (if, for example, you sold the unit trust units, and used the money to buy a new boat, then the interest on the loan would no longer be deductible).
hope this helps

 

Hi, Coops,
Really appreciate your detailed response, which answers all my questions.
Thanks heaps.
Jayar