Hello everyone……….My partner and I have 2 properties .Home and Investment. One loan over both. We have been advised to refinance for tax advantage.
Home…………..$450,000.00 bank value.
Investment property………….$350,000.00 bank value.Enough equity in IP to transfer all debt.
Loan over both……..$277,000.00
Advice given to go freehold on Home and place all debt on Investment and split loan into :
$230,000.00 fixed interest AND $50,000.00 P@I
Each property is held in different names. Lower income earner name on investment propery at present.
QUESTION : Does the ATO require the name of the higher income earner to be placed legally on the IP title in order to gain the tax benefit or are the bank records showing loan split and interest payments on loan sufficient justification.
Any advice greatly appreciated……………Steddi
Who on earth gave you that advice? I hope it was a well meaning friend or relative and not a professional. If it was a professional I suggest you consider changing.
You cannot just transfer debt to an Ip then claim it. The ATO will need to see the trail of money to see that the debt was originally used to buy the IP.
At this stage the best you can do is claim the % of the debt that was borrowed to buy the IP.
You must pay down both deductible and nondeductible debt in the same ratio.
eg
if the home cost $200K and you borrowed $100K
The Ip cost $200K and you borrowed $200K.
You can claim 2/3 of the interest bill. $200K of the total of $300K
If you decide to put a $100K inheritance into the loan it will reduce the two loans equally – so the interest claimable will always be 2/3. You cannot choose which portion to pay down.
this is the DANGER of using one loan and mingling deductible and nondeductible debt!. At the very least you should have had splits to clearly delineate the two amounts.
The only thing you can do is to sell the IP – pay down the debt and start again using a fresh NEW loan. You can sell the IP to a spouse or a trust but it will incur stamp duty.
there is no easy way out of this situation.
Please seek professional advice before you do anything because I fear you may make things worse.
Too true, too many crazy people out there giving blatantly wrong advice
Mortgage Hunter wrote:this is the DANGER of using one loan and mingling deductible and nondeductible debt!. At the very least you should have had splits to clearly delineate the two amounts.
The only thing you can do is to sell the IP – pay down the debt and start again using a fresh NEW loan. You can sell the IP to a spouse or a trust but it will incur stamp duty.
there is no easy way out of this situation.
Just out of curiosity Simon is it not possible to renegotiate the loan at this stage into a split loan in the proportion that it was actually used. You can then concentrate on paying down the non deductible debt and if that inheritance eventuates you can just pay down the home loan.
Paying stamp duty again is a pretty hefty price to pay at this stage I think.
Thanks
Elka
elkam wrote:Mortgage Hunter wrote:this is the DANGER of using one loan and mingling deductible and nondeductible debt!. At the very least you should have had splits to clearly delineate the two amounts.
The only thing you can do is to sell the IP – pay down the debt and start again using a fresh NEW loan. You can sell the IP to a spouse or a trust but it will incur stamp duty.
there is no easy way out of this situation.
Just out of curiosity Simon is it not possible to renegotiate the loan at this stage into a split loan in the proportion that it was actually used. You can then concentrate on paying down the non deductible debt and if that inheritance eventuates you can just pay down the home loan.
Paying stamp duty again is a pretty hefty price to pay at this stage I think.
Thanks
Elka
You can negotiate whatever you want but once the funds are mingled the ATO wont see them as separate loans.
The lesson here is to NEVER mix deductible and non deductible debt!
Keep business and pleasure separate!
Expensive lesson.
Thanks Simon.
Elka
Thanks for the advice folks.
We did at one stage have seperate loans over both properties. We decided to borrow against our equity to go around OZ for 6 months ,added $50k to the mortgage and allowed our broker to combine the loans.[ foolishly,it appears]
Won't do that again!!!!!!!!!!!!!!!!!!!!!!!!!!!! WE HAVE A MEETING WITH A REPUTABLE FINANCIAL PLANNER.
Cheers SteddiI wonder if the fact that the loans were originally seperate changes the situation.
I don't know if a finacial planner knows all the ins and outs of loans and how the ATO views them.Worth checking with a MB who is into investing maybe?
Cheers
ElkaSteddi
OMG i would be leaving that broker immediately and never returning. It is a shame we can't start a SHAME file of these so called Professionals where we could print their names and ensure others avoid them.
In saying that you are not much better off in going to see a Financial Planner unless you have some need to be sold something.
A good MB would structure the loans correctly for you at NO charge and is likely to be far more suited to your needs than a FP.
For future reference the ATO will normally work off the Transfer Form when it comes to the percentage split of the property especially if purchased as Tenants in Common. Remember the funds have to comply with the purpose Test – what was the original purpose of the money.
Richard Taylor | Australia's leading private lender
You must be logged in to reply to this topic. If you don't have an account, you can register here.
