Hi
Im new to this forum but just wanted to know if I can redraw on my principle home loan without any tax implications? I am not planning on spending the money to renovate the place. I put some money towards the home loan and would like to redraw to spend on personal items. If I redraw now (I am talking about 6K only), and decide to make my place into an investment property in 6 months time, will this have any impact as well when it does become an investment property?
Thanks for your tips.
Whilst your house is your residence there should be no issues with redrawing any or all of your money (providing you are able to meet the bank's requirements). There may be an issue should you decide to use the house as an IP in the future and claim the interest on the money which has been taken out (depending much upon the fashion that you will be taking out the money eg from an offset account, redraw facility or new loan).
The ATO considers any redraw like a new loan.
So the interest on this portion won't be deductible in the future as the purpose was personal.
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
So lesson learnt is – dont put down extra payments on your home loan if you think you might make it into an investment property in the future…use an offset account instead.
Thanks
AO
There are one or two ways around but like anything it all depends on the numbers concerned.
The higher the loan amount and the higher your marginal tax rate the better the figures work.Easiest way around it as mentioned is to take an interest only loan and utilise a 100% offset account.
Richard Taylor | Australia's leading private lender
You may find a line of credit loan gives you separation from the main home loan making it easier at tax time.
Hi There, I’m new as well!Can anyone comment on a similar question to the above, however, my situation is, having recently (in the last six weeks) converted my primary residence (of 6 years) to an investment property, can I increase the loan on the now investment property, but only up to the amount the property was originally purchased for, ie only effectively ‘dipping into’ the deposit amount of the original loan, not into any capital gains amount, and still claim the interest on the increased amount as a deduction? My feeling is the ATO would look at the loan at the time the primary residence became an IP, but hope not. Is there a there a time in which you can do this, or is it from day 1 of the property becoming an IP.Thanks in advance.Billy.
Hi Skippy,
The test for deductibility of interest is, 'What were the funds used for?'
So, in your situation, the interest would not automatically be deductible, just because the security is an IP. If the funds were used as a depoisit on a new IP, then yes, the interest would be deductible. If it was for a new car or a deposit on a new PPoR, then no, the interest would not be deductible.
Dan
Hi Billy
Regretfully not as Terry has mentioned this is treated as a redraw.
Couple of ways possibly around it however would need more information to make a comment.
Richard Taylor | Australia's leading private lender
Thanks Dan and Richard for your comments.
'The test for deductibility of interest is, 'What were the funds used for?' So, in your situation, the interest would not automatically be deductible, just because the security is an IP'
That pretty much clarifies it for me.Cheers,
Billy.
Skippy
That is not quiet the case the balance of interest will be deductible even if you previously lived in the property as your PPOR.
Richard Taylor | Australia's leading private lender
Thanks for the clarification Richard.
Although I assumed Dan was referring to the redraw portion of the loan only. I suppose if I'd known 6 years ago that the property was going to become an IP, I would not have been paying any of the capital off, and may not have put in as large a deposit, but you live and learn right?
I will still redraw on the IP loan anyway, as it still makes sense for my particular circumstances, and will probably use the money sometime in the future for an investment (still too scared to purchase shares though!), and then I’ll be able to claim the redraw portion of interest at that time as well.Thanks again.Billy.
Im in the same boat Skippy – if only I had known that information before I bought that place then I wouldnt have paid as much off!
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