Hi can someone please tell me if i transfer some money from my Line of Credit which is used for property investment to my savings account. Is the interest still tax deductible and do i have to show receipts for purchases etc where the money was spent? thanks for the help!
Transfering money from your LOC is essentially borrowing money. In order for the interest to be deductible, the regular criteria apply ... the money must be used for investment purposes, and receipts must be kept as evidence. Simply transferring money to your savings account is certainly not enough (and the mere fact that it is a personal account puts the deductibility into doubt either way) ... you must be able to clearly "follow the money" to determine whether the interest will be deductible.
Hi Sim thanks for the quick reply! Do i then set up a new bank account for only business expenses and transfer from the LOC or can i withdraw straight from the LOC i am very new to this. thanks again Triu
Hi Triu You can do whatever you like as long as you can clearly show a paper trail to the ATO to prove you put the money to use for an investment. For example you might transfer $10,000 to a chq a/c then buy $10,000 worth of units in Navra Invest, then the interest bill on that $10,000 will be tax deductible, or $20,000 deposit on an investment property, that'll be deductible Don't however mix things up by transferring $20,000 for the new swimming pool at home to the same cheque account - once you have a few transactions, it'll get confusing 12 months later when try to explain it all. Keep a spreadsheet of what money goes out for income-generating purposes so you can lump that together with your bank account statement Try to use bank accounts to seperate and account for the transactions so at end of year your accounting is easy. And ideally, find a good accountant now and set up a relationship so they can tell you exactly what records they want you to keep. And above all have fun - its other people's money you're spending ;-)
To be safe i would use the LOC to pay directly for your Ip expenses then there no clouding of where the money went and the purpose. By tranferring it into a savings account the ato could argue that existing funds were used to pay the IP expense and you used the LOC to top up your savings acct. - Not worth the headaches. I commonly use a mastercard specifically for IP exps and then transfer funds directly in the same day or shortly after the debit goes through to reimburse the card. Cheers NickM
Oops - I retreat from my previous position based on advice from the Master. Triu - whatever Nick says, do that ;-) Um Nick, you and I might have to have a chat ...
