Hey everyone,
I have two questions.
On an investment loan, can I claim break fees, providing the purpose of the loan is to refinance solely for the investment property?
Has anyone had any experience with paying interest on mortgage a year in advance? Can you tell me how this went?
Thanks in advance.
On an investment loan, can I claim break fees, providing the purpose of the loan is to refinance solely for the investment property?
Suggest contacting your accountant and verify but I would assume so, yes.
Has anyone had any experience with paying interest on mortgage a year in advance? Can you tell me how this went?
Interest is calculated daily and if you’re on variable, then nobody knows what the interest will be like in the next 12 months. I use redraw or offsets on all my loans so any funds there are offsetting the interest payable while allowing me to draw those funds back if needed.
Hope this helps?
Cheers,
EthanEthan Timor | Aligned Finance Pty Ltd
http://www.alignedfinance.com.au/
Email Me | Phone MeActive Investor & Broker; Based in Northern NSW, servicing Australia wide; Author of '34 Proven Ways to Maximise Your Borrowing Power' (download free from our website)
On an investment loan, can I claim break fees, providing the purpose of the loan is to refinance solely for the investment property?Has anyone had any experience with paying interest on mortgage a year in advance? Can you tell me how this went?
I’d assume it’s a deductible expense – but ask an accountant.
Interest in advance is available with quite a few lenders – you basically prepay in advance at a predetermined rate (usually a discounted rate). I’ve done this a few times for clients. Again – speak with your accountant to see if it’s beneficial.
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]
Has anyone had any experience with paying interest on mortgage a year in advance? Can you tell me how this went?
Its a legit strategy to reduce taxable income but a bit of cat and mouse as you are receiving a tax break in advance.
Colin Rice | CDR Finance
http://cdrfinance.com.au/
Email Me | Phone MePerth Based Mortgage Broker - Investment Property Finance Specialist | E: [email protected]
It depends. If the property is currently an ip and will remain so then it should be deductible in full in the year incurred.
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
Thanks everyone.
Yes, ip staying ip. Fixed interest so easy to calculate. By easy I should say possible.
Anyway thanks for all the replies, looks like I was on the right track.
Found something compelling on the internet so it must be true
https://www.finder.com.au/refinancing-home-loan-tax-deductions
Hi Storeybuilder,
Fixed interest so easy to calculate. By easy I should say possible.
Don’t try to calculate it – call your Bank and ask when you are “closing in” on paying it out. I had only one that I wanted to pay out (others have gone full term, and saved me heaps) but my calculations were WAY UNDER the final Break Cost. It was a long time back, but I recall paying about 2.5 times the amount I had calculated using the Interest Rate, and adding their fees for an early settlement of the Loan.
Things that I believe impact these – if you are breaking a Fixed Loan that has an interest rate HIGHER than the current Variable, they wll sting you for huge amounts. But if the current Variable is HIGHER than the Fixed Rate you are breaking, their costs will be minimal (they get their money back and can re-invest it at a BETTER rate, so they are gentle with you). The time left to run will have an effect too….. the earlier you break it, the more it will cost you (obviously).
The only way to really know is to call and ask (and then get the answer in writing, as well as over the phone). Be sitting down when they tell you the number… :p
Benny
Hi Colin,
Its a legit strategy to reduce taxable income but a bit of cat and mouse as you are receiving a tax break in advance.
The Mortgage Interest has been paid in advance, so I don’t understand the reasoning behind your comment…. ?? Can you elucidate? Thanks,
Benny
Thanks for all the help guys but I feel we are moving further away from the topic.
I already did what you suggested Benny, but thanks for the advice anyway.
What I’m really interested in is, are the break fees claimable? – Which it’s looking like they should be. Thanks @terryw
My comment about the calculations was in response to @ethan
The paying interest in advance serves some purposes.
1. I should be able to get a discount
2. I accidentally piled stacks of cash into my redraw as if it were an offset. This is normally a bad situation, but because I haven’t withdrawn any money from it, and I intend to use it for interest payments the cash will actually be able to be freed and eventually I will be clear of my mistake. This is one way to fix over paying into a redraw account.SB – have you had tax advice on number 2?
This would involve borrowing to pay interest. Interest would be deductible under s8-1 normally, but considering the ATO’s ruling on this they may apply Part IVA to deny the deduction.
Also from a loan point of view there would be few lenders that would allow a loan to capitalise like this without it triggering a default.
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
Thanks @terryw
I have not. That is an interesting point. I plan to use money from the redraw, so would that appear as if I am borrowing money to do It? Would it be wiser just to take regular payments from the redraw, or does it make no difference?
Re the lender, I want to break and refix by dropping the interest in advance then.
Taking money from redraw would create a mixed purpose 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
I’m not sure how that’s possible if it’s for the purpose of paying mortgage interest can you explain?
Taking money from redraw is new borrowings. The purpose of the original loan was purely to acquire the property (assuming you have made no increases and never redrawn). If you redraw the purpose of that new loan is to pay interest. If the interest on interest is deductible then it all relates to the same purpose – the property. But if the interest on interest is not deductible you will have 2 purposes. One deductible and one not.
It will become extremely messy to work out the portions if you do more than 1 redraw.
If you redraw and buy some personal items it would be even worse.
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
Thanks again @terryw I didn’t realise I was taking myself into a dodgy scheme. Really grateful for the advice before I made any moves. What I think you’re saying if that its pretty suspicious to take out a new loan to pay off interest repayments and claim both the original and the new loans interest as a deduction (without a special change in circumstances affecting my income) and the ato may see it as a tax avoidance scheme. The only really clear way out I can see is to restructure the loans and keep one for the ip and the new one I think can be for any purpose. If I wanted to buy 10,000 bean bags or a new property it shouldn’t really matter so long as the purposes are clear, is that right?
I consider myself to be of reasonable intelligence but some of this stuff is truly humbling. I read and read on this all night and found myself increasingly stuck and unclear but I think that is the nature of mixed purposes. I was of the understanding that I could redraw to do anything related to this property such as a renovation or even paying my bank fees out of it, but because it counts as a new loan it gets into some questionable areas and that’s not worth it.
Did everyone follow that? I’m not even sure if that’s right but I feel like such a newbie. Missing my offset these days haha.
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This reply was modified 8 years, 1 month ago by
Storeybuilder.
😂😂😂
It’s funny because it’s true! 😂😂😂
Accounting is so confusing. Even when you think you got it right, even when you did get it right, the rules may change or the ruling or whatever.
My suggestion? Discuss taxation with your accountant.
That’s what I do 👍😎
Ethan Timor | Aligned Finance Pty Ltd
http://www.alignedfinance.com.au/
Email Me | Phone MeActive Investor & Broker; Based in Northern NSW, servicing Australia wide; Author of '34 Proven Ways to Maximise Your Borrowing Power' (download free from our website)
Interest on money borrowed to pay interest can be deductible – This was said in the High Court case of Hart. The ATO even admit it is deductible if the underlying interest is deductible.
But Part IVA ITAA1936 can be used to deny the deduction if it is a scheme with the dominant purpose of making or increasing a tax deduction.
So what is your reason for borrowing to pay the interest?
BTW, This is not accounting but tax – tax law.
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
Hi Storeybuilder,
I accidentally piled stacks of cash into my redraw as if it were an offset. This is normally a bad situation, but because I haven’t withdrawn any money from it, and I intend to use it for interest payments the cash will actually be able to be freed and eventually I will be clear of my mistake. This is one way to fix over paying into a redraw account.
That “sounds” like it is ready to be used. Perhps as a separate loan ONLY for IP expenses.
That could mean for paying Rates, Maintenance, Insurance, and Interest too (though I will leave you and Terry to finalise that one – i.e. re interest, and interest on interest). The main thing (I believe) is to keep each account separate – so if you withdraw via an LOC and ONLY use the $$ in it for IP expenses, then it “should” all be kosher, and all deductible. Maybe have a separate one for Personal??
But I am no adviser – so listen to Terryw and other advisers re the right way to do this.
Benny
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This reply was modified 8 years, 1 month ago by
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