The ATO estimates that incorrect reporting of rental property income and expenses is costing around $1 billion each year in forgone tax
revenue. A big part of the problem is how taxpayers are claiming interest on their investment property loans.
We’ve seen an uptick in ATO activity focussing on refinanced or redrawn loans. This activity is a result of a major
data matching program of residential property loan data from financial institutions from 2021-22 to 2025-26. This data is being matched
to what taxpayers have claimed on their tax returns. Those with anomalies can expect contact from the ATO to explain the discrepancy.
If you have an investment property loan and redraw on the loan for a different purpose to the original borrowing, the loan account becomes a
mixed purpose account. Interest accruing on mixed purpose accounts need to be apportioned between each of the different purposes the money
was used for.
On the other hand, if the redrawn funds are used to produce investment income, then the interest on this portion of the loan should be
deductible.
For example, if you have redrawn on the loan to pay for a private holiday, or pay down personal debt, then the interest relating to this
portion of the loan balance is not deductible. Not only will the interest expenses need to be apportioned into deductible and non-deductible
parts, but repayments will normally need to be apportioned too.
Withdrawals from an offset account are treated as savings rather than a new borrowing. If you have a loan account and an interest offset
account is attached to this account that reduces the interest payable on the loan, withdrawing funds from the offset account will typically
increase the amount of interest accruing on the loan, but won’t change the deductible percentage of the interest expenses.
That is, when you withdraw funds from the offset account this is really a withdrawal of savings and won’t impact on the extent to which
interest accruing on the loan account is deductible.
If you have a home loan that was used to acquire your private home and you have funds sitting in an offset account, withdrawing those funds
to pay the deposit on a rental property won’t enable you to claim any of the interest accruing on the home loan.
However, if you redraw funds from the home loan to acquire a rental property then interest accruing on this portion of the loan should
be deductible. The tax treatment always depends on how the arrangement is structured.
Think you might have a problem? Contact us and we can investigate the issue before the ATO contact you.
17 NOV 2022 @ 3:30-5:00pm
Come and warm our newly extended and renovated office space at Smart Business Solutions in Mornington alongside Bruce Billson, Small
Business and Family Enterprise Ombudsman.
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Legislation before Parliament will lift penalties for serious or repeated privacy breaches, and provide new powers to the Australian Information Commissioner.
The increase in interest rates is starting to take effect helping to restore price stability. However, in its statement, the RBA said that it will be a challenge to return inflation to 2-3%
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In July, the Australian Taxation Office (ATO) reported a new wave of ‘Tax refund SMSF scams’.
Consumer price inflation rose by 1.8% in the June quarter, and by 6.1% on a rolling 12-month view. Whilst high, these measures were below consensus expectations. In turn, this prompted hopes that local interest rates might not need to increase as much as previously feared.
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UK Chancellor Kwasi Kwarteng announced a series of tax cuts, including the reduction of the top personal income tax rate.
New guidelines for professional services firms - lawyers, architects, medical practitioners etc., came into effect on 1 July 2022.
National Cabinet agreed to end the mandatory isolation requirements for COVID-19 effective from 14 October 2022. Each state and territory has, or will, implement the end of the isolation rules.
Come and see what happens when the precision of accounting and foresight of financial planning collide.
Your partners in wealth accumulation, protection and management for today and beyond.
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You’ve worked hard for what you have – it’s time to protect it for the next generation.
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The ATO has released updated information on claiming cryptocurrency losses and gains in your tax return.
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