Hi,I would like some advice.
I have a home that I own, I want to borrow against this house and turn it into an investment. The money that was borrowed would then be used to partially fund another property which would then become my PPOR. The intent of this borrowing would be to produce an income producing property from my first house. Each home would have seperate mortgages. Is this achievable?Matt
Hi Matt
Welcome to the forum.
You can certainly borrow against your existing PPOR to fund the deposit/purchasing costs on your next PPOR.
You can also convert your current PPOR into an IP.
However, in terms of tax deductibility – only the loan securing your current PPOR at present will be deductible (that's assuming you still have a loan on this property and it's not unencumbered). The funds that you borrow to use towards your next PPOR won't be.
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]
Jamie M wrote:Hi MattWelcome to the forum.
You can certainly borrow against your existing PPOR to fund the deposit/purchasing costs on your next PPOR.
You can also convert your current PPOR into an IP.
However, in terms of tax deductibility – only the loan securing your current PPOR at present will be deductible (that's assuming you still have a loan on this property and it's not unencumbered). The funds that you borrow to use towards your next PPOR won't be.
Cheers
Jamie
Hi Jamie, thankyou for the advice. I was hoping to be able to claim a tax deduction on the old PPOR (which currently is unencumbered) with the new investment mortgage.. Looks lke I will have to come up with a new plan..
Cheers Matt
Hi Matt
It's possible – but it will involve costs as you'll either need to sell the asset to a new entity (i.e a trust) or transfer ownership to a spouse (if possible). Best to speak with an accountant about your options.
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]
Matt- House unencumbered or not makes no difference in tax deduction..
Copy and paste from another post:
Interest is deductible to the extent to which it is incurred in gaining or producing assessable income or in carrying on a business for that purpose and is not of a capital nature ITAA97 s 8-1.
Interest on borrowed moneys may be deductible where the moneys are used to:
1. acquire income-producing assets (eg property for rental, shares for dividends: ID 2003/841)
2. to finance business operations (eg as working capital) or to meet current business expenses (eg overdraft moneys used to pay business outoings like rates, water, management, legal fees etc)The security given for the borrowed money is totally irrelevant (TD93/13)
—
So really the PROPERTY doesn’t determine if it’s tax deductible or not…it’s the purpose of that fund and the “paper trail you create”….so you can use a PPOR to borrow money on a IP and still have it 100% tax deductible under a normal structure + loan…doesn’t need to be trust etc…
Regards
MichaelMick C | Shape Home Loans
http://www.shapehomeloans.com.au/
Email Me | Phone MeSame Banks. Better Rates. Served With a Passion.
Shape wrote:.so you can use a PPOR to borrow money on a IP and still have it 100% tax deductible under a normal structure + loan…doesn't need to be trust etc… Regards MichaelHe's not buying an IP though – he's buying a new PPOR and wanting to covert his current unencumbered PPOR into an IP…..too many acronyms
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]
Jamie M wrote:Shape wrote:.so you can use a PPOR to borrow money on a IP and still have it 100% tax deductible under a normal structure + loan…doesn't need to be trust etc… Regards MichaelHe's not buying an IP though – he's buying a new PPOR and wanting to covert his current unencumbered PPOR into an IP…..too many acronyms
Cheers
Jamie
Thanks guys for the info.. Looks like its a sticky area.. I was advised that I could turn my PPOR into an IP by an FA so thats what I did, unfortunately my accountant says otherwise and I have a bit of a tricky situation to sort out.. Looks like it will be a costly lesson..
Cheers Matt
You can certainly turn the PPOR into an IP, the interest on the existing loan should be deductible, but not on any further borrowings.
Did your FA advice otherwise?
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
Terryw wrote:You can certainly turn the PPOR into an IP, the interest on the existing loan should be deductibleI think that's where his FA and accountant are divided. He doesn't have a loan on his current PPOR (soon to be IP) – so while he can turn it into an IP, there is no loan to deduct against.
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]
Ah,, I missed that important bit. If there is no loan then there is not interest to deduct!
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
Reading the post agian:
“I have a home that I own, I want to borrow against this house and turn it into an investment. The money that was borrowed would then be used to partially fund another property which would then become my PPOR”
It sounds like he got a PPOR that has no loan- but this will be rented out (no loan so no interest to deduct) HOWEVER he wants to use the equity to buy a ppor?? if that’s the case then sorry the new loan is not tax deductible- as the fund is used for Personal use PPOR.
Regards
MichaelMick C | Shape Home Loans
http://www.shapehomeloans.com.au/
Email Me | Phone MeSame Banks. Better Rates. Served With a Passion.
Thanks for all the advise it is much appreciated..
Matt
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