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Re: Apportionment of interest on property loan

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Initiate

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Hi All, 

 

The taxpayer has a main residence which is currently earning rental income . The tax payer relocated to another state, rented a house and considered about buying a new property to live in. (New main residence is not yet purchased and net income from old residence is declared in the tax return) 

 

There is a redraw facilities in the total of $40k (for the cumulative extra repayments that have been made) in $200,000 existing loan balance. 

 

My question is :

If the taxpayer redraw that $40k for the deposit to purchase the new main residence in future, is interest deductibility % of investment property's loan balance changed from 100% to 80%? Or, 100% still be deductible after the redraws of cumulative extra repayments. 

 

I understand that the loan needs to be apportioned if there is additional redraws related to personal purposes. However, this scenario seems different to me. 

 

Hope someone can help me in this regards. 

 

Many thanks.

 

Pinky

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Devotee

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So original loan was for $200,000 and 100% of the interest would be tax-deductible?

 

Now loan loan = $160,000 for investment property and $40,000 for personal?

 

Therefore $160,000/$200,000 (80%) of interest is tax deductable.

 

Paragraph (24)

 

https://www.ato.gov.au/law/view/view.htm?docid=TXR/TR20002/NAT/ATO/00001

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Best answer

Devotee

Replies 0

So original loan was for $200,000 and 100% of the interest would be tax-deductible?

 

Now loan loan = $160,000 for investment property and $40,000 for personal?

 

Therefore $160,000/$200,000 (80%) of interest is tax deductable.

 

Paragraph (24)

 

https://www.ato.gov.au/law/view/view.htm?docid=TXR/TR20002/NAT/ATO/00001

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Devotee Registered Tax Practitioner

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Agree with macfanboy -  80% in this example.

 

TR 2000/2 has a formula for apportioning interest where the are a series of redraws and repayments for private purposes.

 

The fact that they made extra payments before the redraw will not assist. 

Tax deductibility lies with the purpose of the redraw, not the history of the loan.

 

Initiate

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Thanks for the answers. 😊
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