How tax deductions for investment work

Photo: Simon LetchLet’s assume I borrow $100,000 against my property to buy shares. I understand that the interest on the loan will be tax deductible because the purpose of the loan was for investment. What is the position if I sell the shares in the future and use the proceeds for a private purpose; is the interest on the original $100,000 loan still tax deductible?


The interest on a loan is only tax deductible if the borrowed money was spent on an asset that is currently being used to produce income. There is an exception if the asset is sold for less than the loan balance, but only if all of the sale proceeds were used to pay off the loan. So the simple answer is no longer deductible if subsequently used for a private purpose.

I am living in my first property, a one-bedroom flat, which I bought 15 months ago. In six months or so I plan to rent the flat out and live in my partner’s house as my primary place of residence. My flat needs renovating. At what point do the renovations count as an investment expense? Is it from the date that I move into my partner’s house? Or must it have earned rental income before any renovations are tax deductible?

A renovation is never an investment expense if it improves the property beyond the condition it was in when you purchased it – if it is a capital item that must be added to the cost base and so reduce whatever capital gains tax is payable when you sell the property.

All is not lost – you can claim Division 43 building depreciation on any improvements you make that are not plant and equipment. For example, if you were to paint the unit and put in a new bathroom then these costs can be depreciated at 2.5 per cent a year. A kitchen renovation is a little different. You need to separate out plant and equipment such as the stove, hot water system, range hood, dishwasher and vinyl leaving only things like the cupboards that can be depreciated at 2.5 per cent a year.

You can claim ongoing expenses such as interest and maintenance once the property is available for rent.

Is there is any connection for an individual between the annual concessional cap for super contributions and making a spouse contribution? For example, if I reach the $25,000 concessional super contributions cap in a year, can I still make a spouse contribution and claim a tax deduction?

There was never a tax deduction allowed for a spouse contribution. Provided the income of the spouse is less than $40,000 a year, there is an 18 per cent tax offset with a maximum of $540. The offset is gradually reduced for incomes above $37,000 and phases out completely once spouse income reaches $40,000.

This year I earned $92,000 and paid $23,000 in tax. Is there anything I can do to cut my tax?

There is not much you can do with salary income, but in the current financial year you could make a deductible superannuation contribution of the difference between the limit of $25,000 and the employer contribution. If we assume the employer contribution is $9000, you could make a concessional contribution of $16,000. This would incur 15 per cent contributions tax but it would cut your taxable income to $76,000 and reduce your tax from $23,000 to $17,000.

I really appreciate your columns but wonder if a recent answer to the carer of a 76-year-old mum, concerning the unit she owns, might be incomplete.

My understanding is that a parent being cared for by a family member may be able to arrange to transfer a share of their asset (a unit in this case) to their carer in exchange for ongoing care, thus saving the government the greater cost of providing care. This, of course, may not apply if the carer is a “protected person”. We are interested in the subject, as we are in our late 70s, own our home, and are thinking about our own future.

Rachel Lane of Aged Care Gurus says that you appear to be referring to granny flat rights, which enable people to transfer their property in exchange for a right to live in that, or another, property. These rights don’t require someone to be provided with care – although this a common family situation. An important aspect of establishing a granny flat arrangement is understanding that there is a five-year look back. This means that if the person who has transferred the property moves into care within five years of the transfer, the transaction can be considered a deprived asset or gift for Centrelink and aged care purposes. The Q&A you mention was dealing with a situation where care had already been entered into, or was imminent – hence such a strategy would not be appropriate. If you are considering going down this road I can’t stress enough the importance of specialist legal and financial advice.

Noel Whittaker is the author of Making Money Made Simple and numerous other books on personal finance. His advice is general in nature and readers should seek their own professional advice before making any financial decisions. Email: [email protected]苏州美甲学校苏州美甲学校论坛.