Hi,
I bought a property in 2006 for 275K.
After extra payments my loan was on 150K.
I have withdrawn 80K extra payments, so now loan is on 230K.
Property value is around 330K.If i increase my loan from 230 to 300K after paying some LMI.
I will have 80K (redrawn) + 70K (access after increasing loan )= 150K in my current offset account.Say in few months
if i buy a house and declare current PPOR as IP & new home as PPOR.
I intend to link offset has 150K linked to PPOR.At that time IP loan will be 300K, will all of it will be tax deductible?
mmhh sounds to me like we have ourselves a problem already.
As it stands only the interest on the amount of $150K is Tax deductible as technically the redrawn amount is not.
Richard Taylor | Australia's leading private lender
Good thinking I can see how you came to this idea. But the 150k redraw has to be for investment purpose that produces income to be tax deductible.
Here is something else to think about
What is your current marginal tax rate is it 40% check tax rates at?
http://www.ato.gov.au/individuals/content.asp?doc=/content/12333.htm
So at $150,000 x 6% interest/p/a = $9000
So 40% of $9000 = $3600 tax returned
60% of $9000 = $5400 you pay hence lose so as to get $3600 back
(it is worse case if you are on 30% tax rate)Lets say you make $9000 as net income from the investment property. (as an example)
tax is 40% of $9000 = $3600 . You pay $3600 as tax for rental income but keep $5400 AFTER TAX (if marginal tax rate is 40%)
You can use $5400 p/a to help pay off either the PPOR your planning on buying or to pay off the now converted ppor to investment property.150K deductible does not sound very attractive.
any alternative?
you could sell and buy a new IP,
or I've heard that you may be able to buy or sell your half to a joint owner and increase the deductible amountany cunning way?
deductibility will depend on what the extra withdrawals were 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
Can I also ask if you have a 100% offset accounta against your PPOR does this hinder you from borrowing more for IP's. Should you aim to pay off the PPOR if that is the final PPOR you will live in.
No a Offset account does not hiner your borrowing capacity.
A lender will take the existing loan balance (or in fact the amount the loan could be redrawn upto) as your liability so if you had a loan of $100K and $50K in the offset account the liability will still be seen as $100K.
Richard Taylor | Australia's leading private lender
But Richard does it mean I can borrow less because I still have the outstanding debt that I can also use for myself against PPOR. If this is so it would be a fair advantage to own your PPOR outright then and just have all deductible debt against other IP's etc.
Is that a better way to do it?
If this is so it would be a fair advantage to own your PPOR outright then and just have all deductible debt against other IP's etc. Totally agree but if you think you will move out of the PPOR, rent it out and buy another PPOR you want debt shifted.
Richard Taylor | Australia's leading private lender
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