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Private Ruling Adventure

Discussion in 'Accounting, Tax & Legal' started by MrDarcy, 31st May, 2006.

  1. MrDarcy

    MrDarcy Well-Known Member

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    I compiled a private ruling application myself and faxed it to the ATO about 2 weeks ago. I thought I might post my adventure as it unfolds for those also looking to do this.

    Today a nice man from the ATO called me. I have had nightmares about answering the phone and hearing 'This is xxx from the ATO' :eek: but it wasn't that bad.

    He asked a couple of questions to clarify my requests and said that my "work was excellent" and "amazing".... Now that's is nice to hear, but all I needed to hear was "yes".

    They are unable to give oral ruling, but he said I also could have called for advice instead of applying for a ruling. Hmmm, not binding and probably not accurate me thinks.

    Further details of the man from the ATO are being mailed to me, and I should expect the written ruling in about 2 weeks.

    The outcome of the ruling will not change what I am doing as I am already doing it, just determine what I do and don't claim for some interest deductions. I made this point clear on the application and today on the phone.

    I'll keep you all posted.
     
  2. talbashan

    talbashan Well-Known Member

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    hi
    can you describe the nature of the ruling? not capitalised interest by any chance? :)
    tal
     
  3. Nigel Ward

    Nigel Ward Team InvestEd

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    Well done Mr D!

    That is an incredibly fast turnaround. I wouldn't hold your breath for written ruling.

    Looking forward to hearing about your adventures in taxland.

    Cheers
    N.
     
  4. MrDarcy

    MrDarcy Well-Known Member

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    Could be!! There are just some many ways of capitalising interest, I'll post the application and the ruling together when the time comes.

    On a more serious note, I think there is a new small green spot going "blip blip" on the ATO audit radar :eek:
     
  5. MrDarcy

    MrDarcy Well-Known Member

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    Got it !

    My private Ruling arrived in the mail today, that wasn't so hard ! Faxed 16th May, ATO mailed 2nd June, in my hands 6th June.

    Anyhow, the ruling is to cover two questions.

    Part 1 is easy, "Are you entitled to claim a deduction for prepaid interest on a loan used for income producing purposes" . Yes

    Part 2 was the biggie, "Are you entitled to claim a deduction for interest incurred on redrawn funds used to prepay interest on your investment loans"

    :) :) :) YES :) :) :)


    It is ruling number 63384 but I can't see it on the ATO site yet.

    Getting the ruling wasn't much of an adventure after all, but I wonder when the notice of audit will arrive :eek: That will be the next adventure.
     
  6. TakeStock

    TakeStock Well-Known Member

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    Well done!

    Did you have a template for your application or did you do it 'from scratch'?
     
  7. MrDarcy

    MrDarcy Well-Known Member

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    Mostly from scratch. I did read up on few similar ones first, and there was a link posted on this forum in the past on a similar ruling 44746. I looked at that and quoted it for the tax law references it contained.

    The application form is a good template in itself. PM me if you want a copy of the application.
     
  8. johnnyb

    johnnyb Well-Known Member

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    Well done indeed!

    Can you please confirm my understanding of the situation you are dealing with:
    1. Draw down funds from an LOC. Eg, you draw down $10K. You will then have to pay interest on this drawdown over the next year of $700 (assuming 7% interest).
    2. Use the $10K to pre-pay the interest interest on another loan (eg margin loan, or a loan for an IP) used for income producing purposes.
    3. Claim a deduction for the $10K (covered by part 1 of your ruling).
    4. Claim a deduction on the $700 interest on the initial drawing (covered by part 2 of your ruling).

    Is that it? There is no mention of the type of loan the funds are drawn from in Step 1. I have assumed it is an LOC that you are using for investment purposes. What if I had the $10K in an offset account on my PPOR mortgage. If I withdrew the $10K from the offset could I claim the $700 interest as a deduction? Would your ruling cover that as well?

    John.
     
  9. MrDarcy

    MrDarcy Well-Known Member

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    Hi,

    Close, but no connection with offset accounts here.

    What I have had confirmed is that borrowing to pay for interest costs on loans used for investment, is itself a tax deducable expense.

    Interest on interest can be deductable.

    In this case the interest on investment loans were big lump sums as I was prepaying for a year. I redraw these funds from my PPOR home loan and the interest charges that will be accured from now on those drawings is deductable.

    This is a good arrangement as:

    - good for cashflow
    - by the interest costs coming from a dedutable loan, I have increased my deductable borrowings and will have more cash during the next year to pay down other non-deductable debt. Debt converstion is quite important as I still have another large PPOR loan.

    I scanned the ruling today and it is now attached. perhaps this will make things clearer.
     

    Attached Files:

  10. Nigel Ward

    Nigel Ward Team InvestEd

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    Top shelf Mr D!

    Well done.

    N.
     
  11. johnnyb

    johnnyb Well-Known Member

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    What if I draw down from a loan to pay the interest on the interest on the interest. Is the interest on the interest on the interest deductible?

    What if I draw down from a loan to pay the interest on the interest on the interest on the interest.........:D :D :D
     
  12. MrDarcy

    MrDarcy Well-Known Member

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    That's what I'll be doing next year, so I'll let you know :D
     
  13. Glebe

    Glebe Well-Known Member

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    Good schtuff Mr D :)
     
  14. TryHard

    TryHard Well-Known Member

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    Good Lord ! I worship at the altar of Mr D - outstanding effort ! :D

    "Faxed 16th May, ATO mailed 2nd June, in my hands 6th June." (are you absolutely certain it was the ATO you were dealing with ?? ;)
     
  15. MrDarcy

    MrDarcy Well-Known Member

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    Yes, a little prayer may be required. I'm sure I'm a BLIP in the audit radar now. The PR was just to get me to lower defenses :eek:
     
  16. Terryw

    Terryw Well-Known Member

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    Thank you Mr Darcy for sharing your good experiences with the ATO - They don't get much good publicity.

    As an aside, I don't mean to alarm you but one of my friends was a senior investigator with the ATO and hen mentioned that applying for a PR was "like waving a red flag at a bull" :eek:

    Regards

    Terryw
    Terry@discoverhomeloans.com.au
     
  17. MrDarcy

    MrDarcy Well-Known Member

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    Toro, Toro :eek: Only kidding, really !