Investment loan interest payment arrangements
The ATO has released a Taxation Determination that provides the Commissioner’s views in respect of certain “investment loan interest payment arrangements”. According to the Commissioner, the general anti-avoidance provisions in the tax law can apply to deny a deduction for some, or all, of the interest expenses incurred in respect of these arrangements.
The type of arrangements discussed in the Determination broadly involve outstanding loans on a residential home, an investment property and a line of credit. The ATO says a key feature of these arrangements is the use of the line of credit to pay the interest on the investment loan. This results in all (or most) of the interest on the investment loan being, in effect, capitalised. That is, the payment of the investment loan interest is deferred.
According to the ATO, the deferral has the economic effect of allowing the taxpayer to repay the home loan at a faster rate than would otherwise be possible.
