Tax deductability of borrowed funds

We have recently refinanced some of our loans to access more equity for investment purposes. The extra funds (after the previous mortgage was paid out) were sent to us in the form of a bank cheque.

NAVRA will not accept a third party cheque even though it would be endorsed to them for deposit into the retail fund.

If we clear that cheque through our personal savings account and invest an identical amount as soon as the cheque is cleared will we have a problem with the deductability of that loan? It would be quite obvious that the funds are just going in and out, however is this sufficient for a tax audit?

Hope someone has the answer as we don't want to open yet another bank account just to clear the funds.

 

Thanks Sim - sounds like commonsense to me.

coops

 

Have a look at this from Bantacs under "Losing Interest Deduction":

Bantcs.

Tax law and common sense... about as separate and business and personal finances.

Have a chat to good accountants on this matter and get professional advice. Losing deductability is too import to risk and hard to get back.

 

in this case i know if the account is empty when you deposit the check that is ok, maybe you could clear this account out just for a few days and let the cash sit in an offset account

otherwise would anyone know if you say have a cheaque deposited for $5000 into a bank account of $100, i know this is mixing funds, but if worst comes to worst, could you claim interest on $4900 as you could argue there is no way you could of put more than $100 of private money into the investment?

 

When I'm stuck and can't keep investment and private separate, that's what I do. So as private funds and investment borrowings never mix, I empty the private transaction account a day before the borrowed funds are deposited. This way they are "clean". It's of a lot of bullsh!!t, but the ATO opinion is quite clear.

I do keep seperate investment and private accounts, but from time to time it can't be helped. Just keeping a good paper trail is not safe enough for me, borrowed investment funds should not mix.

 

Thanks everyone for the advice - I think we'll play it safe and deposit into an empty account.

coops