Q5 There is one part to Question 5, worth total of 5 marks. 5 Points The taxpayer, Jim Johnson originally lived in a property in Melbourne which was valued at $2m in January 2020. Jim and his wife moved to the Gold Coast in Queensland in May 2020 to avoid Melbourne's Covid lockdowns and unpredictable cold weather. They purchased a property in Gold Coast for $1m. Thereafter, the Melbourne property became an income- producing rental property. In order to acquire their new home in the Gold Coast, Jim required bank finance. He entered into a new financing arrangement in April 2020 where he borrowed $600,000 which comprised of 2 loan accounts. The first was a Home Loan Account for $200,000 loan used to fund the purchase of their Gold Coast residence. The second was an Investment Loan Account for $400,000 loan for the repayment of moneys still owed on the Melbourne property which was producing rental income. The $600,000 loan was secured against both properties. Jim directed all their monthly repayments to the Home Loan and none to the Investment Loan account. Meanwhile, interests continued to be charged and capitalised in the Investment Loan account and repayments would commence once the home loan was fully repaid. These actions enabled Jim to repay the home loan faster while he claimed tax deductions for the interest payments accruing on the investment loan under 5.8-1 ITAA 1997 in his 2020 and 2021 income tax returns. Jim argued that the purpose of entering into the new financing arrangement was to increase his wealth for a comfortable retirement in Queensland. Advise the reason(s) why Jim believed that he could claim tax deductions on the capitalised interest costs accruing on the Investment Loan Account under s.8-1 ITAA 1997. Discuss whether the Australian Taxation Office would succeed in applying Part IVA ITAA 1936 to the new financing arrangement Enter your answer here Q5 There is one part to Question 5, worth total of 5 marks. 5 Points The taxpayer, Jim Johnson originally lived in a property in Melbourne which was valued at $2m in January 2020. Jim and his wife moved to the Gold Coast in Queensland in May 2020 to avoid Melbourne's Covid lockdowns and unpredictable cold weather. They purchased a property in Gold Coast for $1m. Thereafter, the Melbourne property became an income- producing rental property. In order to acquire their new home in the Gold Coast, Jim required bank finance. He entered into a new financing arrangement in April 2020 where he borrowed $600,000 which comprised of 2 loan accounts. The first was a Home Loan Account for $200,000 loan used to fund the purchase of their Gold Coast residence. The second was an Investment Loan Account for $400,000 loan for the repayment of moneys still owed on the Melbourne property which was producing rental income. The $600,000 loan was secured against both properties. Jim directed all their monthly repayments to the Home Loan and none to the Investment Loan account. Meanwhile, interests continued to be charged and capitalised in the Investment Loan account and repayments would commence once the home loan was fully repaid. These actions enabled Jim to repay the home loan faster while he claimed tax deductions for the interest payments accruing on the investment loan under 5.8-1 ITAA 1997 in his 2020 and 2021 income tax returns. Jim argued that the purpose of entering into the new financing arrangement was to increase his wealth for a comfortable retirement in Queensland. Advise the reason(s) why Jim believed that he could claim tax deductions on the capitalised interest costs accruing on the Investment Loan Account under s.8-1 ITAA 1997. Discuss whether the Australian Taxation Office would succeed in applying Part IVA ITAA 1936 to the new financing arrangement Enter your answer here
