All Topics / Creative Investing / Switching IP equity to PPOR – tax benefits?

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  • Profile photo of jbutchartjbutchart
    Member
    @jbutchart
    Join Date: 2011
    Post Count: 2
    November 22, 2011 - 2:42 am

    Hi

    I have a couple of investment properties in Vic and am looking to purchase a PPOR in NSW as I am currently renting.  I know that I can't receive tax deductions were I to redraw on one of my IP loans and put it into the PPOR.
    I am considering maximising the finance on 1 IP to pay off the loan on the 2nd IP (or bring it down to a minimal amount).  When this is done I am considering selling the 2nd IP and taking all of the equity to put into the PPOR.
    Does anyone know if this is possible to do whilst still enjoying the tax deductible benefits on the 1 IP with the large mortgage, or will the movement of the funds in this way still constitute personal use and not enjoy the tax benefits?

    All rather conceptual, but advice would be welcomed.

    Thanks

    Profile photo of Jamie MooreJamie Moore
    Participant
    @jamie-m
    Join Date: 2010
    Post Count: 5,069
    November 22, 2011 - 6:38 am

    It all comes down to the "purpose" test.

    Just think – "what will the funds be used for?"

    If they're going towards an IP – then they're deductible. If going towards a PPOR – then they're not.

    Cheers

    Jamie

    Jamie Moore | Pass Go Home Loans Pty Ltd
    http://www.passgo.com.au
    Email Me | Phone Me

    Mortgage Broker assisting clients Australia wide Email: [email protected]

    Profile photo of jbutchartjbutchart
    Member
    @jbutchart
    Join Date: 2011
    Post Count: 2
    November 22, 2011 - 9:38 pm

    Thanks Jamie M

    I guess the "end purpose" will be to go towards the PPOR, however the funds from the increase loan will first of all go into another IP which we will eventually sell, with the proceeds going into the PPOR.  I am wondering if there is a minimum time that the funds would need to be in the second IP before it was sold to pass the purpose test?

    Profile photo of Richard TaylorRichard Taylor
    Participant
    @qlds007
    Join Date: 2003
    Post Count: 12,024
    November 22, 2011 - 11:57 pm

    JB No minimum time as the ATO will get there slice of CGT when the IP is sold.

    Cheers

    Yours in Finance

    Richard Taylor | Australia's leading private lender

    Profile photo of TerrywTerryw
    Participant
    @terryw
    Join Date: 2001
    Post Count: 16,213
    November 23, 2011 - 12:13 am

    If you borrow extra on IP 1 to pay for the loan on IP 2 then sell IP2 the interest on IP1 new loan wll no longer be deductible because you have sold the property the loan relates to.

    Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
    http://www.Structuring.com.au
    Email Me

    Lawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au

Viewing 5 posts - 1 through 5 (of 5 total)

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