Shiny new investment scheme? Beware!

There is not much I haven't heard or seen in the mortgage world these days, and investment 'schemes' are certainly one of those that keeps popping up every few months in conversations. So, I'll blog about it, and if you come to me with this scheme all the relevant links to the ATO's 'no can do' policy on this will be readily available to you. The result of which I do hope, seeks you to stop talking to whoever it is selling you this scheme. Be it a 'financially literate' (HAHAHA) friend, or one of those investment property or financial planning firms that have glossy compendiums and free 'seminars'. Forget about that, sounds like this is a smelly scheme which will see you end up in trouble with the ATO.

So what's the scheme I'm referrring to? Specifically it's the one where you get an investment loan, then you borrow, with equity in your home a line of credit, which will fund the investment home interest payments. Thus interest is essentially borrowed, and you can claim the interest on that too. As such, you can literally BORROW YOUR WAY TO WEALTH. Please note extremely dry sarcasm is intended here, the best wealth creation strategy I have seen is one where you pay debts off. Not that I can offer you any financial advice, it's just, would you tell your own children to follow this strategy?

Anyway, it's the ATO, they have this thing called "Anti-Avoidance" when it comes to avoiding taxes, and they don't want to allow you to claim a tax benefit on the line of credit paying the interest. I.e. That nice little thing we call negative gearing? That's fine, but you're pushing your luck if you try to ALSO claim the interest on the loan paying the interest because BAM you have just been caught up in a scheme. Claiming interest on interest? That appears to be an anti-avoidance scheme!

You can read all about Tax Determination TD2012/1 and Part IVA of the Income Tax Assessment Act 1936 here This resource cites many legislative and case references,

Why would anybody try to sell these schemes to me?
Because they are either going to profit from the property they sell you, the financial services fees they charge you, the mortgage commissions they earn from you, or all of the above.

My advice - report them to ASIC.

I cannot offer accountancy or financial advice, so this article is not intended to do so, please seek your own accountants, financial planning or legal advice in relation to investments. Me? I'll structure the mortgages correctly and negotiate you a damned competitive rate.

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