Paying down IP loan

Viewing 6 posts - 1 through 6 (of 6 total)

Ollie
Participant
@ollie77
Join Date: 2014
Post Count: 30
June 17, 2015 - 9:05 pm
I have had my IP for nearly one year now and have paid down the loan by about 30k. Can I redraw on that loan to buy a car as the paid down amount was from my own savings?
Cheers
Ollie
Ollie
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crj
Participant
@crj
Join Date: 2004
Post Count: 618
June 17, 2015 - 9:37 pm
You can redraw, but the interest on the amount redrawn will not be tax deductible and any repayments of principal will go both to the investment portion of the loan and the amount redrawn for the car.
Corey Batt
Participant
@cjaysa
Join Date: 2012
Post Count: 1,010
June 17, 2015 - 10:56 pm
DON’T redraw on the investment loan. Best course of action is to cancel the redraw available, then setup a new loan split to release the funds needed. This protects the deductibility of your existing investment loan and clearly defines what is deductible vs investment debt.
This is a great case as to why you shouldn’t be paying directly into the loan account, and instead placing the funds into an offset account. Instead of drawing the funds out of your offset account and maintaining a further 30k tax deductible loan, you will now have a 30k non deductible loan losing you circa $1.3k in tax deductions every year.
If you have any trouble with this, speak to an investment savvy broker to ensure your loans are setup correctly to avoid further mistakes like this in the future.
Corey Batt | Precision Funding
http://www.precisionfunding.com.au
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Investment Focused Finance Strategist - servicing Australia-wide
Jamie Moore
Participant
@jamie-m
Join Date: 2010
Post Count: 5,069
June 18, 2015 - 10:08 am
Agree 100% with Corey.
If you’re unsure how to do it – seek expert help. Corey would be a good start.
Cheers
Jamie
Jamie Moore | Pass Go Home Loans Pty Ltd
http://www.passgo.com.au
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Mortgage Broker assisting clients Australia wide Email: [email protected]
Terryw
Participant
@terryw
Join Date: 2001
Post Count: 16,213
June 18, 2015 - 10:58 am
You probably can redraw to buy a car but you shouldn’t as it will create a mixed purpose loan. As Corey says split the loan if you need to borrow to buy a depreciatiing asset such as a car.
The interest on the car loan may or may not be deductible depending on if it is business related.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
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Lawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Ollie
Participant
@ollie77
Join Date: 2014
Post Count: 30
June 18, 2015 - 8:23 pm
OK thanks guys for the advice. At the time of taking out the loan it had a good interest rate but I was unable to have an off set account. Not to worry, learn from your mistakes. I think the car can wait.
Ollie
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