Q: There's a valuable house in Sydney owned by Mr. and Mrs. X. They live there. Mrs. X wants to renovate the house, spending about 23% of its current value. They don't want to pay extra taxes for transferring part of the house to Mrs. X. So, they decided she'll lend the renovation money to Mr. X, secured by a mortgage. Mr. X will then pay back 23% of the house's value when repaying the loan, or 23% of the sale price if they sell the house. The renovation could increase the house's value more than the money Mrs. X loaned. If Mrs. X owns part of the house, she won't pay taxes when selling it, as long as it's still their main home. But if they use a mortgage, the tax treatment is different. Is a mortgage taxable? If so, would the extra money paid back be a profit subject to tax? And would they get a tax break if they hold the mortgage for over a year before repaying it?

A: The extra money paid back from the mortgage could be considered part profit and part interest. Usually, the excess is seen as interest and is taxed as regular income. If it's seen as a return on investment, different tax rules might apply. The tax discount for long-term investments applies only if the extra payment is considered a return on investment and if the mortgage is held for over a year before being repaid. However, there's a chance the extra payment could be seen as profit, not investment, and then the tax discount wouldn't apply.

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