Has anyone read the legislation to see if "stacking applies".....
Option 2:
Stacking.
Under this option, taxpayers would allocate their pre-27 March loans, excluding any loans traced to private purposes,16 first to assets that are not residential investment properties.
The rationale for this approach is that well-advised taxpayers would be able to restructure to achieve the same tax outcome under tracing anyway.
17 Allowing this tax outcome without requiring a restructure would therefore reduce compliance costs and help taxpayers who do not have 16
Where loans have been applied to both taxable and private purposes, taxpayers have always needed to trace to ensure that they do not claim interest deductions for borrowings applied to private purposes.
17 For example, a taxpayer could sell their non-residential assets to a wholly-owned company for market value, and the company could borrow to acquire those assets. The taxpayer would then use the sale proceeds to repay the pre27 March loan.
As the company’s borrowings are traced to the acquisition of non-residential business assets, its interest deductions would be allowed in full (subject to possible application of the general anti-avoidance rule in section BG 1 of the Income Tax Act 2007) professional advice.
For this option, stacking will be based on the market value of assets as at 26 March 2021.
Example 10: Transition of pre-27 March loan As at 26 March 2021, Tiffany owns two properties, both acquired at around the same time in the 1990s: • a residential rental property purchased for $300,000, with improvements of $100,000 carried out in the 2000s; and • a commercial rental property, purchased for $400,000, with no improvements. She acquired the two properties using a combination of loans and savings.
Over the years, Tiffany has refinanced and restructured her loans several times and has made many repayments. As at 26 March 2021, she has a single outstanding loan of $200,000 and no other debt. Although Tiffany never used the loans for personal purposes, she did not trace exactly how the borrowed funds were applied to each property in the past and does not have the records to do so now.
Option 1: apportionment based on cost
Under the apportionment approach, 50% (being $400,000 divided by the total asset costs of $800,000) of Tiffany’s $200,000 loan is treated as having been used to acquire the commercial property. The remaining 50% of her loan is treated as having been used to acquire the residential property. From 1 October 2021 until the loan is fully repaid, Tiffany will be able to deduct 50% of the interest expenditure incurred under her loan. The remaining 50% of interest expenditure will be subject to phasing.
Option 2: stacking based on market values Under the stacking approach,
Tiffany’s $200,000 loan is stacked against her commercial property first. Assuming the market value of the commercial property on 26 March 2021 is at least $200,000, Tiffany can continue to deduct all her interest expenditure under the loan indefinitely
Option 2:
Stacking.
Under this option, taxpayers would allocate their pre-27 March loans, excluding any loans traced to private purposes,16 first to assets that are not residential investment properties.
The rationale for this approach is that well-advised taxpayers would be able to restructure to achieve the same tax outcome under tracing anyway.
17 Allowing this tax outcome without requiring a restructure would therefore reduce compliance costs and help taxpayers who do not have 16
Where loans have been applied to both taxable and private purposes, taxpayers have always needed to trace to ensure that they do not claim interest deductions for borrowings applied to private purposes.
17 For example, a taxpayer could sell their non-residential assets to a wholly-owned company for market value, and the company could borrow to acquire those assets. The taxpayer would then use the sale proceeds to repay the pre27 March loan.
As the company’s borrowings are traced to the acquisition of non-residential business assets, its interest deductions would be allowed in full (subject to possible application of the general anti-avoidance rule in section BG 1 of the Income Tax Act 2007) professional advice.
For this option, stacking will be based on the market value of assets as at 26 March 2021.
Example 10: Transition of pre-27 March loan As at 26 March 2021, Tiffany owns two properties, both acquired at around the same time in the 1990s: • a residential rental property purchased for $300,000, with improvements of $100,000 carried out in the 2000s; and • a commercial rental property, purchased for $400,000, with no improvements. She acquired the two properties using a combination of loans and savings.
Over the years, Tiffany has refinanced and restructured her loans several times and has made many repayments. As at 26 March 2021, she has a single outstanding loan of $200,000 and no other debt. Although Tiffany never used the loans for personal purposes, she did not trace exactly how the borrowed funds were applied to each property in the past and does not have the records to do so now.
Option 1: apportionment based on cost
Under the apportionment approach, 50% (being $400,000 divided by the total asset costs of $800,000) of Tiffany’s $200,000 loan is treated as having been used to acquire the commercial property. The remaining 50% of her loan is treated as having been used to acquire the residential property. From 1 October 2021 until the loan is fully repaid, Tiffany will be able to deduct 50% of the interest expenditure incurred under her loan. The remaining 50% of interest expenditure will be subject to phasing.
Option 2: stacking based on market values Under the stacking approach,
Tiffany’s $200,000 loan is stacked against her commercial property first. Assuming the market value of the commercial property on 26 March 2021 is at least $200,000, Tiffany can continue to deduct all her interest expenditure under the loan indefinitely
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