Hi,
I am in the process of refinancing my IP loan. When we first bought the place, we borrowed the 20% deposit from our parents and $15K for a reno job. So I now want to refinance the loan so that we include the 50K depsoti and 15K reno ($65K all up) on our loan (and we can pay our parent back the full amount and have the debt in our name. Can I just simply increas my nterest only loan on the IP by refinancing it for the extra $65K? and thus the full loan would increase from $200K +$65K =$265K new amount? I have bee given approval from bank but wanted to know if this is o.k from an accounting and tax rebate on interest point of view?
Hope someone can help me?
P.S I have been given a recommendation to use Gattherum-Goss as an accountant firm? Anyone know anything about them? Recommend them etc…????? I am looking for accountant in S.E outer Melbourne…..
If the bank is willing to loan the additional $65k to cover the deposit/refurb costs based on capital growth, then there would probably be some peace of mind for yourselves that you only owe money to the bank & not your parents – you can call on this favour again later (if they are really nice, they might just let you keep the money, but make the offer to repay first).
There should be no dramas about being able to claim the interest on the new loan as you are only restructuring your finances – I assume that you are currently paying your parents interest and that the loan is fully documented/on a handshake? If it is documented, then proving that it is simply refinancing is much easier if the question is ever asked.
Yes from both an Accounting and Tax persepctive the strategy is fine.
With regards to GG Dale has retired from the Business and I do not believe he is taking on any new clients.
Richard Taylor | Australia's leading private lender
I am not so sure from a tax POV
The repaying the parents should be fine, you are just refinancing that loan with another.
But the $15k reno bit may be tricky. If you borrowed this from your parents or someone else, then you would be just refinancing. However, if you paid cash for it, then you have spent the money already. Increasing the loan by $15k to give back to yourself would be new borrowings and the deductibility of the interest on this amount would depend on what the newly borrowed $15k would be used for.
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
Terryw is right about the $15K for the reno. It depends how it was done, ie who owns the IP and who incurred the expenses.
If the IP is in a Trust and renovations were paid from its cash reserves, or if the IP is owned in an individual's name and that individual paid cash for the renovations, you're out of luck.
But if the IP is in a Trust, and you paid for the renovations personally, then you could perhaps create documentation showing that the monies expended by you personally were a loan to the Trust which the Trust has to repay. Then the $15K refinance could be used to repay you personally and would be deductible.
If you put all the reno expenses on a credit card and use the refinance to repay that credit card, you may be able to achieve deductibility, but it could get untidy if you've also put personal expenses on the credit card.
Sorry if this is confusing, but the principle is this: if the entity whose expense this is has already paid cash, then there was never a demonstrated need for that entity to borrow for the expense, and therefore interest isn't deductible. You can only claim interest if incurring that interest (ie getting a loan) was necessary to pay the expense.
ALWAYS pay expenses out of a line of credit or some kind of debt if you can – if you have heaps of spare cash, put it in an offset but don't pay off the debt, or else you lose its deductibility forever.
Warmest regards, Tracey in Brisbane
O.K
here is what we did.
used $50K of parents line of credit for the deposit. Then a year later used another $15K of their money line of credit to pay for the reno. So all up we used about $65K of their line of credit…….
P.S thanks guys… MERRY CHRISTMAS TO YOU ALL!!!!!!!Hi Snowflake
Sounds like you have a loan with your parents and you will be refinancing that loan, so you should be ok.
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
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