We are thinking of purchasing a property with cabins to rent out nightly. We will live in the main property. Will the mortgage interest be tax deductible as we are running a rental business?

Hi Wesley

Sounds like the main reason why you are buying this property would be for investment purposes. If this is the predominant use; then your loan will need to be set up as an investment loan. In relation to claiming the interest as a tax deduction; you will need to speak to your accountant about this (I am a Mortgage Broker only so cannot provide any tax advice)

The other thing to consider from a lending perspective is if a lender will deem the property as suitable security. Can you provide a link from Real Estate. com or similar so that we can take a look at the type of property?

If you want more information; please contact me on 1800 824 325 (Option 1)

Hi Wesley,
I agree with Sam that of greater concern is the acceptance of the property as representing suitable security for a lender.
Even then, assuming that a lender is prepared to grant you a loan over the property, they may likely limit the loan ratio such that you will be required to put in a larger deposit or offer some other suitable property as collateral security.
I'm guessing that the cabins are not in Sydney?
Have you received evidence from the vendor as to the income being generated from renting out these cabins?
If you require a lender to take into account that rent to assist you to confirm your ability to service the proposed debt, then you will need historical income confirmation.
I am also mindful of the property usage being approved by the local government authority. Does it comply with the zoning requirements? Are all of the safety aspects in each cabin up to date, i.e. fire safety etc.
Obviously your solicitor will check into these points on your behalf.
It certainly sounds like having the potential of being a reasonable investment.
Just be mindful to complete all of your due diligence before signing on the dotted line and good luck with it.

Hi Wesley,

In answer to your question of the actual deductibility of the loan, the answer is that if the loan has DUAL purposes, then the loan will be PARTIALLY deductible.
The portion of the property that is your primary residence will not be used to generate income and hence this proportion of a loan will not be for an income-producing purpose and hence any interest on this portion of the loan will not be deductible
The portion of the loan which is for the income-producing part of the asset will clearly be for a creditable purpose, and hence the interest on this portion of the loan will be deductible.
Find a mortgage broker who can explain Hart's Case to you so that they clearly know what the income tax implications are, then talk to them about getting two loans: one on the primary residence portion and one on the income producing portion. That way you will very easily be able to identify and claim the correct amounts for tax purposes.

good luck
bc