Hi, first post here.
Have a PPOR worth $500k (no debt).
Want to access the equity, but due to several issues, will not be setting up a LOC as recommended by many ppl on this forum.
However, have approach bank and they have agreed to give me $400k (80%) loan by using my PPOR as security. The thing is unlike LOC where I can draw down as I go, this loan requires me to draw down the $400k immediately. However, this will be put inside an offset account so will have no interest on it unless I use it.
Just wandering with this set up, does anyone see any issue in claiming the interest for tax deducible on IPs? Will the ATO see that I have drawn down the $400k and place it in my normal account (and hence not for IPs) and hence will not allow me to claim interest?????from my understanding as long as you have a seperate account for each investment property that produces statements showing monthly interest payments then these can be claimed back from the tax office. therefore use your access account to pay deposits on new IP then have seperate loan accounts for each new property. as you draw down each deposit amount then you will start to pay interest on the money drawn down for deposits as well as interest on each individual loan. be sure to keep accurate records such as bank statements as well as any paperwork from solicitors regarding their costs in settling each sale it is important to ahve seperate loans for each property so that if you get into trouble paying for one property you won't be putting all properties at risk as you would be if they were all linked together
As long as you purchase the IP within a reasonable period of time then there will be no problem.
Probably easier to hold off the loan drawdown until you are ready to settle on your new IP.
One issue i can see is that you can only offset the current loan balance so your income cannot go into the same offset account as the savings balance will exceed the loan balance.
Make sure the loan on your IP also has an offset account to counter this.
Obviously when you draw down the amount for the IP deposit and costs the savings balance will fall.
Richard Taylor | Australia's leading private lender
I am not so sure you will be safe.
You are essentially borrowing money to invest into a bank account. If you move the money from the bank account if will no longer be borrowings and so the connection may be lost.
If you do wish to do this, see the advice of your accountant (in writing). Do not put any other money in the offset account or you will be mixing borrowed money and non borrowed.
A better way to do it may be to put the money back into the loan and redraw it when needed – even if you have to pay a $20 redraw fee. An even better way would be to just use a LOC – even if you have to pay 0.10% more.
And read all the articles in the newsletter at http://www.bantacs.com.au because a few years ago Julia wrote about a legal case involving a Canberra person who did what you describe and was denied deductibility because they borrowed money and put it into a savings account then wrote cheques – your situation may be slightly different.
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'd agree with Terry, if you can get an LOC and use it for the purchase or alternatively (many will shoot me down in flames), use the IP as security and the PPOR to top up that security up if necessary and have the loan against the IP (with an offset etc) – then there would be a no questions asked approach as the money borrowed can be directly related to the purpose (the IP). There may be some cross-colateralisation issues (ie one being used to secure the other & cross claims against either property) however if you consider your mix of loan/security/& income from the IP there should minimal risk placed on your PPOR.
Thanks all for the great advise. The loan amount will be 100% used for IP and no personal use.
The main difference will be on an LOC you will pay nothing until you use the funds – on the loan with 100% offset you will be paying loan repayments still, as soon as the loan draws down! …… it is just that they would all be paying off the principal, rather than interest if you had the same amount 'offset'. . Based on what info you have provided, I cannot see why you would not use an LOC. Remember, once a line of credit type loan (or whatever fancy name the particular lender gives it) if you end up drawing the whole lot eventually, for deposits, repairs whatever, you can always then swap it for a 'standard' loan or offset loan with a lower rate. Bear in mind, if you are a strong negotiator, have plenty of equity, and put in a bit of effort, you will find you may get a line of credit loan for not much mor than a 'normal' loan.
all the best.
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