Hi All
I need some help on this one.
I'm currently living in my PPOR and looking to move out and rent and rent my PPOR out. I have quite a bit of equity in this property and am seeking advise on the legalities of the following scenario:
1. Refinance whilst I'm still living there (leaving only 20% equity and converting to interest only loan)
2. Hold the remaining equity in an offset or savings account. These funds will be somehow made available to my future trust structure (I'm still researching options) for further property purchases.
The idea is to comfortably "max out" the loan on the PPOR to claim the highest possible interest component against my income given the property is in my own name.
What I was wondering is – can I claim the full amount of this loan regardless of what the funds are used for as this is the balance of the loan when I move out, or if say I spend a portion of it on non investment related goods/services, would this proportion still be deductible.
Thanks in advance !
Matt
The PURPOSE of the loan dictates whether you can claim the interest on the loan or not, and the A.T.O can be tough on those who get it wrong.
You can claim the interest if it is used for investment purposes, but not if it is used for personal purposes such as holidays, cars, renos on your PPoR etc. If you use your PPoR as an I.P, then the renos would be tax deductible or depreciable as a capital improvement. You need to talk to your Accountant on that though.
You could set up an equity loan that had 2 (or more) accounts – one for personal use, and one for investment use. You only pay interest on the funds you use, and you can allocate more funds for investing, less for personal or vice versa.
Because they are separate accounts the tracking for tax purposes is easy and you won't get into trouble with the A.T.O by using personal funds and trying to claim tax deductions on them.
"can I claim the full amount of this loan regardless of what the funds are used for as this is the balance of the loan when I move out"
No. The ATO would be all over you before you knew it.
I agree you cannot legally claim the interest as the purpose is personal. Not sure if the ATO would necessarily know about it unless you were audited.
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
Why not hold off until you find the new PPOR you wish to live in then sell your existing house to your Trust and claim the interest on the full 100% off the Transfer as a tax deductible expense.
Use the funds raised as deposit on the new PPOR thus reducing your non tax deductible debt by the same amount.
Richard Taylor | Australia's leading private lender
Thanks All !
Appreciate your input
Cheers
Matt
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