Are there any good news for my friend?

[Lotana]

Calling to all tax experts,

Please help me to see if there is anything a friend of mine can claim as a deduction in this unfortunate scenario.

3 years ago my friend and his wife bought a unit OTP. That was their firs IP purchase. They refinanced their home loan and borrowed extra $51K (through a separate account) which was used to pay a 10% deposit, solicitor's cost, searches, loan application fee, perhaps even stamp duty (not sure). When the settlement came about 2 years ago they were not able to settle and lost their deposit. They were very naive at the time and were not telling anyone what they were doing, otherwise I would help them out of the trouble. Anyway, they ended up with a $51K IO loan and have been paying $275/month for nearly 2 years.

My feeling is that there must be some taxation benefit they can get out of this mess: either the interest they pay is deductible, or the capital loss can be claimed against future capital gains, or perhaps both?

Could anyone comment on this situation?

Thanks and regards,
Lotana

 

[sbe]

Hmmmm..... tricky..

Dale would probably know for sure, but...

ATO rulings look at the purpose of the borrowings. In this case legitimate.

Could be hard though because they also want to know the property it belongs to.....

Could have a fairly good chance. You can always make an anonymous phone call to the ATO to find out if you wanted to.

Dale?

 

[DaleGG]

Hi

The interest on the $51,000 will be tax deductible because the funds were borrowed with the intention to buy an investment property. Your friends should get specific advice though because this claim may be denied if they refinance this loan. Care is needed.

The actual lost deposit is not tax deductible, but, should qualify as a Capital Loss to carry forward to offset agsainst future Capital gains.

Dale

 

[sbe]

Ah Dale..... prompt and thorough as always !!!

 

[Lotana]

Dale, thank you very much,

My friend is not using an accountant at the moment, I hope to convince him to contact you for this year tax returns and last year amendments. I believe he can greatly benefit from this. He is learning about property investment now and will buy IPs as soon as he's out of the financial mess created by his first unsuccessful attempt.

Regards,
Lotana