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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.
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:
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.
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