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Re: Renovation loan on rental property

Newbie

Views 849

Replies 5

Hi,

A little bit of background story;

I applied 50k to be added to my rental property home loan for the purpose of renovation on the rental property. The extra loan was approved and the bank transferred the 50k to my personal transaction account. The next day I then transferred the 50k back to my rental property home loan. 

The question is

1) Because the 50k was transferred to my personal transaction account and then back to the rental home loan account, is the interest on the 50k tax deductable or is it considered a private expense?

I'm getting mix response from the ATO as well as the Accountant. The accountant says NO cause it went out to a personal transaction account. So even though it goes back into the rental home loan account it does not qualify. The rule was blanket from the accountant, any money transferred to a personal transaction account, the interest on the rental home loan account is not tax deductable. 

When I ring the ATO, they say YES cause at that point the money was not used for private it was intended to be use for the renovation so it went back into the rental home loan. Hence you should be able to claim the interest on the 50k.

A clear answer would be appreciated as I don't know which path I should choose (Accountant or ATO) when submitting my claim for the rental interest on the rental property. I'm looking for an answer so that I don't get penalised for putting in the wrong figures.

 

Thanks in advance.

1 ACCEPTED SOLUTION

Accepted Solutions

Most helpful response

ATO Community Support

Replies 0

Hi @euclyn,

 

Thank you for your reply. This inquiry has been answered on our forum previously. You can check our response via the thread.

 I note this has been answered on your other posts also.

 

Regards,

Jodie2. 

5 REPLIES 5

Master

Replies 0

I'd also like to know the answer to this one

ATO Community Support

Replies 0

Hi @euclyn and @TreeShark,

 

Thank you for reaching out to us. The deductibility of interest is determined by the purpose of the loan and how the borrowed funds are used. You can claim the interest charged on the loan you used to:

  • purchase a rental property
  • purchase a depreciating asset for the rental property (for example, to purchase an air conditioner for the rental property)
  • make repairs to the rental property (for example, roof repairs due to storm damage)
  • finance renovations on the rental property, which is currently rented out, or which you intend to rent out (for example, to add a deck to the rear of the rental property)

You can also claim interest you have pre-paid up to 12 months in advance. If any portion of the loan is used for private purposes you would need to apportion the loan interest charges accordingly. So for the 1-3 days it was not in the loan account you would not be able to claim interest deduction for those days.

 

Hope this helps.

 

Regards,

Jodie2.   

Devotee

Replies 2

Just to make sure I understand the situation, you borrowed $50,000 to do renovations. Is this part of the loan you have for your rental property, or is it a separate loan to your rental property?
When looking a deductibility of interest, you have to consider the where each dollar was used. Right now it sounds like you have just put the money into your loan. As the money is not used for income producing purposes, sounds like the interest on the $50,000 is not tax deductible:

Newbie

Replies 1

Hi,
The 50k is part of the rental home loan. It’s a refinance of the rental home loan. The money needs to go somewhere when the bank disperse the 50k. So it went to my personal account then gone back in to the rental home loan within a day. The 50k is not used yet as the renovation has not started.
When the renovation starts on the property then I will redraw from the rental home loan to pay the renovator. So the questions is whether I’m able to claim on the interest of the home loan when the 50k hits the personal account. Is that 50k considered a private borrowing or a deductible borrowing. Bearing in mind I’m trying to calculate the private portion of the interest and I’m not claiming any interest when the property was not rented out.

Most helpful response

ATO Community Support

Replies 0

Hi @euclyn,

 

Thank you for your reply. This inquiry has been answered on our forum previously. You can check our response via the thread.

 I note this has been answered on your other posts also.

 

Regards,

Jodie2.