I turned PPR into an IP recently in Feb 2011 and have been renting for the last few months. Now looking to buy another PPR using the equity in the IP – but I’m not sure if I’ve dug myself into a bad tax position re the IP? IP details:Value 600kMtg o/s (IO) 325kIn re-draw ac 65k Therefore I was looking to raise $155 as deposit on new PPR by withdrawing the 65k in re-draw ac and then an extra 90k line of credit (thus pushing mtg on IP to 480k / 80% LTV). I’m concerned about my tax position once I do this though. My current tax return to 30.06.2011 should be straightforward as this is my first year with an IP and the loan is 325k IO. But in future years – my mortgage payments will be based on 390k (325+65 re-draw) and a LOC of 90k. Will the ATO not allow the payments on the 390k to be tax deductable? Can anyone advise what I should do in order to raise the $155k deposit but maximise my tax position? Also, mortgage broker is advising I take out the 2nd loan with same provider (ING) as I will be able to get 85% LTV on new PPR. He says they will be stand alone loans with no cross-collateralization. Is this a good idea? Many thanks for any help you can provide.
By redrawing, you're essentially re-borrowing. You're borrowing those funds to buy your PPOR. The LOC likewise is a borrowing to buy your PPOR. Neither of these are deductible debt.
Out of interest, if buying a new PPOR with greater than 100% lending is really something you want to do, to make things simpler (if your lender will allow it), I'd do a variation on your existing loan to reduce the balance to $325 (if needed, experts could advise) and take out a $155k LOC, so at least this way you've clearly separated the two types of debt.
Its probably worth doing the sums on just selling the IP, putting a large cash deposit down on the PPOR and then using that additional equity to purchase a new IP.
To make things simpler I would change the loans to IO with a limit of the existing balance. Then get a LOC up to 80% LVR for the remainder.
WHen you buy the new home borrow the deposit from the LOC and get the remaineder from a new loan. Make sure only one property is securing each loan and take an 100% offset account on the new PPR loan.
If you took the money from the redraw the interest on this wouldn't be deductible and you would be mixing investment and personal loans so it is not advisable to do it this way.
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
Your broker is right. You can have both properties with ING without them being crossed. The only comment I'd make about ING is that they can be a pain when accessing equity in the future.
Cheers
Jamie
Jamie Moore | Pass Go Home Loans Pty Ltd
http://www.passgo.com.au
Email Me | Phone MeMortgage Broker assisting clients Australia wide Email: [email protected]
Thanks for all the responses. Much clearer now and a lesson learned in always having a 100% offset account instead of just a re-draw facility.
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