If one was to buy a 200K prop and have a 20K deposit. So 180K principle loan. Say you have an I/O loan.
5 years later you buy a PPOR and your current situation is this. You have an IP worth say 250K, a 180K IP I/O loan and a say 300K PPOR loan.
Now can you capitilise the interest on the IP and claim it and also because it is increasing as the loan is increasing, then claim also the increasing amount so that your deductions increase. You then use money each week that you would usually use to pay off your IP to pay off your PPOR to reduce your NON-deductable debt.
Thus overall you gain a tax saving of the increased loan of the IP.Then I could use the increased deduction to help pay off my NON-deductable debt.
I haven't heard of this before. Can it be done, is this all right????
There was a case in the courts a couple of years ago between the ATO and a guy who capitalised the interest on his investment loan while paying down the PPoR loan.
I think the ATO denied his tax claim, he sued the ATO and it went to court. Correct me if I'm wrong if someone can remember this case.
The ATO lost the case for the time being, but the message was that it may not be a rule in the future, so it may not be a good idea to take the risk.
Besides; I think it's a bit "robbing Peter to pay Paul" anyway – you are making a bigger loss through the increased neg gearing which would cancel out a lot or some of the gain you make in decreasing the PPoR loan.I see where your coming from with the 'robbing from Peter to give to Paul'.
My main point for this is that you will gain some advantage in that you will have a lower non-deductable debt and a higher deductable debt. That is a good thing.
Whereas I could compare this to two similar debts one being deductable and one being non-deductable. If the deductable one is being increased when the deductable is being decreased you should get better deductions as the 'deductable' debt is larger and hence more TAX back.
How could I determine if it can be done, contact the ATO, see an accountant??Thanks,
Christopher Fife.L.A Aussie wrote:There was a case in the courts a couple of years ago between the ATO and a guy who capitalised the interest on his investment loan while paying down the PPoR loan.
I think the ATO denied his tax claim, he sued the ATO and it went to court. Correct me if I'm wrong if someone can remember this case.
The ATO lost the case for the time being, but the message was that it may not be a rule in the future, so it may not be a good idea to take the risk.
Besides; I think it's a bit "robbing Peter to pay Paul" anyway – you are making a bigger loss through the increased neg gearing which would cancel out a lot or some of the gain you make in decreasing the PPoR loan.You're right .. the ATO initially lost the case .. but they appealed and they won. Case closed.
So its definitely illegal to do that now .. so don't even try it !
One good stratery for saving for your own home is to have the IP interest only with an offset account but make the payments each month as if the loan was P&I with the component that you would normally be used to clear down the priciple accumulating in the offset account, so each month more and more money is accumulating as the interest charged is getting less and less becuase you have money accumulating in your offset account.
so when it comes time to buy your dream home you can use the money in the offset so your tax deductable loan reverts back to it's full amount and your home loan is reduced as you have been able to save a decent deposit.
Thank you everyone you have helped me heaps. I guess the best way now is to do what Tyson said.
Thanks,
Christopher Fife.
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