Fresh Tax Blitz On Split Home Loans
Sun Herald
Sunday August 11, 2002
THE tax office is clamping down on split home loans for the second time.
The move could also make it more difficult for investors and small businesses to claim interest on interest as a tax deduction.
Acting Tax Commissioner Michael D'Ascenzo said the tax office would seek special leave to appeal to the High Court against a unanimous Federal Court decision which ruled against it.
``Subject to the outcome of the special leave application, the tax office will continue to deny deductions for interest on the additional interest component in accordance with our public ruling on split loans," D'Ascenzo warned.
He said the split loan ``reduced the after tax cost of purchasing a private home and an investment property at the same time".
``By linking the home loan with the investment loan, interest that could reasonably be expected to accrue on the home loan accrues instead on the investment loan," D'Ascenzo said.
Home lender Austral Mortgage had appealed, and won, against the tax office ruling that refused to allow deductions for borrowers who accelerated their home repayments while letting interest on investment loan accumulate.
Because the tax office lost 3-0 in the Federal Court, it is not a foregone conclusion that it will be granted leave for an appeal.
The court said tax considerations weren't the dominant reason for the couple in the test case taking out the loan, which was to buy and re-finance two properties.
But it meant borrowers could beef up their tax deductions which could then fund home repayments.
Austral claims the loan means borrowers can pay off their home in five to seven years.
The loan took off in the mid-1990s before the tax office ruled against it five years ago.
Managing director Vicky Edema said Austral would continue to offer the split loan.
But borrowers would not be penalised if the tax office ruling stands and would be transferred to other loans.
© 2002 Sun Herald
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