Hello,
I have a PPOR and two IP's (about to build), the two IP's are financed under a IO varible loan and I should have a decent degree of equity upon the two IP's completion.
I am looking to expand my property portfolio in the furure, I am thinking about changing the loan structure on the two IP's to a LOC so that I use this to pay a deposit etc for my next IP acquisition.
My question is can I withdraw funds from a LOC structure on the IP loans and place some/all of this cash into my PPOR loan to reduce my non tax deductable interest? does this require a certian structure/strategy so as to comply with the tax department?
My other question is, is it better to change my IP loan structure to a LOC upon completion of the IP's or can I do this in the same phase of refinancing for the next IP purchase. Also what are the fees and logistics associated with this type of arrangement?
Any help is greatly appreciated, thank you.
Hi lalor
Firstly welcome to the forum and I hope you enjoy your time with us.
My question is can I withdraw funds from a LOC structure on the IP loans and place some/all of this cash into my PPOR loan to reduce my non tax deductable interest? does this require a certian structure/strategy so as to comply with the tax department?
Regretfully not as it is the purpose of the funds that determines the deductability of the interest. In this case the actual purpose would be to pay down a non deductible loan so therefore fails the "purpose test".
Personally would try and gear each loan to the maximum secured solely against the individual property itself (Whether you go to 90% and pay LMI is a personal decision and will depend on your overall position) then set up the investment LOC on your PPOR to draw for each new IP.
Debt cycling over the years to ensure that eventually the full purchase price plus acqusition costs of each IP is secured against that IP only.
Your Broker should be able to help you with a full finance makeover (Sounds like a gardening show).
Richard Taylor | Australia's leading private lender
You would be borrowing to pay personal expenses and therefore the interest wouldnt be deductible. Talk to your tax advisor about borrowing to pay interest on investments freeing up cash to use on your PPOR loan.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
In agreement and further to Terry's comment : Interest can be claimed on the cost of funds borrowed for maintenance, renovations, and depreciating assets (e.g furniture).
This is the introduction to some real strategies to indirectly reduce debt on your PPOR.
Discuss this with your accountant to ensure this is facilitated well.
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