Interest on LAQC loan to pay Capital Dividend

[sinead]

I can't find the email / article notifying me of a change to tax laws and am hoping someone on the forum can confirm that I have understood the changes correctly.

My understanding is that there has been a change restricting the ability of an LAQC to deduct interest on borrowings used to pay a Capital Dividend which was paid on the basis of an unrealised gain. Previously interest on all borrowings were tax deductible.

Sinead

[cube]

Yes, there has been a change, and I believe (based on what I read in NZ Property Mag), that it is to do with timing - you can only claim for capital loaned the previous year, not the current year.

Check the magazine or with your accountant.

cuber

[sinead]

Hi Cube,

Thanks for that, I've got the magazine, that must be where I read it. I'll reread it to get a better understanding.

Sinead

[Re@der]

We had a thread a few months ago discussing the difference between capital dividends and capital drawings from the LAQC. Vaguely I recall that you could withdraw all funds that you put in to the LAQCwithout paying tax on the drawing.

[sinead]

Hi Doug,

Yes you can definitely take out what you have already put it with any interest on borrowings to repay capital introduced being tax deductible. My question is related to the withdrawl of unrealised capital gains. From rereading the article in the Prop Inv mag it appears that interest on money borrowed to pay a capital dividend on the basis of unrealised capital gains is not tax deductible.

Regards

Sinead

[CJ]

If it is a "dividend" then my understanding is that the interest on the loan to pay for that will be non deductible (this is based on 3 year old knowledge so rules may have changed).

If you remove the QC status it would be deductible, But then you loss the QC benefits (LAQC is a type of QC).