Hello all. Just a quick question: I own a $400k property which I live in. I have payed off $200K and have a $200k mortgage remaining. I would like to borrow $100k of my home equity to invest in shares. Is the interest tax deductable because it is to invest in shares or non tax deductable because I am paying off my own home?
Providing you intend to have a new loan drawn up for the $100k the interest would be tax deductible. I am no expert so I am sure someone else will correct me if i am wrong.
Cheers
KessudSo I couldn’t just withdraw the money out of my current home loan?
Hi bamute,
The interest would be tax deductible if you set up a separate loan (like a line of credit) and use the money to invest in any income producing assest (e.g., shares).
If you just withdraw the money out of your current home loan (say, through a redraw facility) then effectively the interest will not be deductible.
Kind regards,
Jason.A good one for your accountant to answer.
I believe it comes back to what the money is used for.
eg. You owe $200k and borrow another $100k for income producing assets (shares, IP or whatever).
Total borrowings are $300k with 2/3 non deductable debt (PPOR) and 1/3 deductable debt (for investment). So 1/3 of the intrest payments (not principle payments) are deductible against your income.IMOP it dosn’t matter where the money comes from as long as it is for income producing assets it is deductible. Keep in mind that you will need to work out the intrest portion for the investment (or your accountant will) for your tax return.
CATA
Asset Protection Specialist
[email protected]For taxation reasons and to minimise the cost of your accountants time and keeping him happy I would suggest having a split put in the loan otherwise he will have to calculate the amount of interest paid on your PPOR loan portion and the amount paid for the investment. It also simplifies things, Doesn’t cost anymore to do when taking the money so why not?
If you have any dramas with my explanation I’d be glad to discuss with you further.
Cheers,
Stuart Milne
Non-Conforming Specialist
READY Mortgages
http://www.readymortgages.com.au
[email protected]
Mob: 0404 056 055Hi Bamute,
I have a line of credit on my PPOR. I have sub accounts that I have split off to take advantage of my equity.
Each sub account is used for a different investment purpose and this makes it very easy to keep track of. Just be aware that some lenders charge a monthly admin fee for each sub account. However, I don’t mind paying a bit extra to keep things separate and easier to understand, manage and keep track of.
Just remember, at tax time, tax deductible and non tax deductible interest has to be clearly identifiable.
Todd Burns
http://www.freepropertyhelp.com.auThe ATO “Purpose Test” would apply and the interest charged against the additional borrowing would be Tax deductible.
In addition, any costs or charge associated in setting up the facility and the mortgage Stamp Duty would also become deductible albeit as a loan cost and deductible over 5 years or the term of the loan if shorter.
Whilst, it is imperative to keep the account separately you may wish to link up a offset account rather than a LOC dependant on the two rates of interest.
Richard Taylor
Residential & Commercial Finance Broker
**Lodoc Commercial loans from 7.19%**
Licensed Financial Planner
http://www.yourstatefinance.com
[email protected]
Ph: 07-3720 1888Richard Taylor | Australia's leading private lender
Thanks for the help people. Having separate loans will work well as I can pay off my non-tax deductible loan first.
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