Alarm as taxman takes interest
April 25, 2012


A NEW tax ruling sounds a warning to some of Australia's 1.5 million property investors and may cost them thousands of dollars in tax breaks, experts say.

The Australian Taxation Office has flagged it will crack down on property investors claiming deductions for interest expenses on certain types of loan arrangements.

Property owners using some or all of the rental income from an investment property to pay off their own home loan while adding the interest from the investment loan to the principal and claiming it as a deduction would come under scrutiny, accountants BDO said.


In a determination last month, the ATO said it would reject such arrangements.

''People are trying to divert all the rental income off into their home loan. That's pushing it too far and that's what the Tax Office is getting at,'' said Age columnist and tax expert Max Newnham.

The change would affect one of the ''big ticket'' items, claiming interest paid, which landlords rely on when lodging their tax return, said BDO property tax specialist Eddie Chung. ''Any loan arrangement that incorporates features that would effectively give rise to the capitalisation of interest on an investment loan while the loan repayments are used to pay down the principal of a private loan is now under the spotlight,'' he said.

Investors relying on a larger tax deduction to reduce their expenses would feel a ''real financial squeeze'', said Andrew Gardiner of the National Tax and Accountants Association.

The ATO's determination will apply retrospectively and could affect a landlord's past income and deductions, potentially costing them thousands of dollars.

Property investors should be conservative and avoid claiming deductions for any compounding interest on their investment loan, Mr Gardiner said.

It was difficult to quantify how many investors would be affected, Mr Newnham said. ''Of our clients, I'd be surprised if 10 per cent were doing it,'' he said.

Read more: http://www.theage.com.au/business/property/alarm-as-taxman-takes-interest-20120424-1xjbv.html#ixzz1sziL8w1v

I dunno about this. the thing is these "investors" set up these things in the "good times". Now times are hard and they cant unload the properties. Stopping them from being able to pay their mortgages is going to cause some problems.

SOB

Swagman wrote on Apr 25^th, 2012 at 9:52am:


Good ! Let them invest it somewhere else instead of denying others a place to live.

Swagman wrote on Apr 25^th, 2012 at 12:39pm:


I should correct that and say places that they can own for themselves !! Do you need a further explanation ?

Sir lastnail wrote on Apr 25^th, 2012 at 12:44pm:


Yes, how do they prevent people from owning their own homes?

Lastnail - why do you hate property investors so much????

My parents have done well out of it.

Rather than knock it, try it yourself.

Sir lastnail wrote on Apr 25^th, 2012 at 12:58pm:


There's no denying that owner occupiers have to compete with property investors and that competition can inflate housing prices and yeah some people may be excluded as a result, that's why the Govt has home buyer grants and stamp duty exemptions.

Maybe they can do more on this front but deterring property investors is not the answer.  The economy needs their investment it creates jobs so that people can earn an income to buy their own homes.

Swagman wrote on Apr 25^th, 2012 at 1:11pm:


So why the downturn in the economy in Victoria ? What has happened to the great big property industry ?

And do you think the talk of the town in germany is about flipping houses to each other and chiselling money off each other in a property ponzi scheme or is it about the next new product they are going to manufacture and export to rest of the world ?

Inflating house prices is an understatement !! They should abolish negative gearing or only make it apply to brand new house and land packages only.