Hello all,
Things have been moving very quickly for me over the last 3 years and I have found myself in a spot of bother.
Any help with my situation would be greatly appreciated.
I purchased my first home (PPOR) with a small deposit and a PI variable loan through ING 3 years ago. I lived in it for 12 months before a job offer meant I needed to move up NE Qld.
So. . . . in my “wisdom” I converted the loan to IO and bought another house on a different loan but the same PI variable ING loan.
About 2 months ago, and while living in my new PPOR, I withdrew the extra money I payed on the first house (~ 12k) with the intention of paying it off the PPOR mortgage. I have since realised the ATO doesn’t like this.
Which brings me to my question/questions?
What’s the penalty for drawing that money off the 1st home? Should I pay it back?
When I want to move back to Brisbane (in the next 12 months), do I need to sell my second house if I want to use the extra money (~60k available) for a deposit?
In hindsight I should have chosen an IO loan with a 100% offset account (I think?) but I guess I will just have to pay the price.
Thanks in advance!
Stressful Albert
Albert84 wrote:About 2 months ago, and while living in my new PPOR, I withdrew the extra money I payed on the first house (~ 12k) with the intention of paying it off the PPOR mortgage. I have since realised the ATO doesn’t like this.
Which brings me to my question/questions?
What’s the penalty for drawing that money off the 1st home? Should I pay it back?
As it was two months ago the penalty is that you have a real headache .
What your penalty is – You cannot Claim the Portion of the IP loan that was the redraw amount interest charges as a tax deductible expense because you used it for a private purpose rather than for an investment purpose.
If you claimed the redraw portion in your last or any previous tax returns then you will have a problem with the ATO.
If you did the wrong thing with your tax return then you could pay a penalty fine up to 25% of what is owing and interest on the money owing to the ATO
See web links at end of this posting !So you have to work out how many days in the financial year you had redraw amount.
Then you have to work out or find out from the bank what interest rates were charged on each day as it has been changing lately
Days *of (int 1)x (annual interest rate 1) /365 * redraw amount
plus
Days (of int 2) x (annual interest rate 2)/365 * redraw amount
plus
Days (of int 3) x (annual interest rate 3)/365 * redraw amountor you might be able to ask the bank if they can calculate the total interest for the financial year for the redraw amount.
Then you need to subtract this amount from the total loan interest on investment property.
You could ask the bank if they can split the loan so as to make working out the portion of redraw easier.
Split >>> Redraw amount / Investment purpose amount
(However it can be complicated see note at end of posting #######)
A line of credit can also split the loan to make it easier at tax time.Read about proportioning private with investment in the links below
http://www.smh.com.au/articles/2004/08/13/1092340458713.html?from=storylhs
http://www.gadens.com.au/Publications-View.aspx?documentid=36
http://www.renos.com.au/resources/interest-deductions/
http://www.bdo.com.au/media-centre/m_r/qld/10_tax_return_mistakes_to_avoid point 4##### if you are paying off principle then the ratio of private / investment can change
The interest is ratio of % of loan that is private and % that is investment and the interest is worked out by total interest* investment ratio with line of credit / private loan. So if you made a payment on the part that is private it changes the ratio amount.Best to talk to an accountant on how best to work out portioning of private to investment amounts and also on number of days if not whole financial year for private part of loan.
What do you think have house we live in and 2 investment properties one only have small amount to pay off but other is a new one nearly built in Victoria (im from Adelaide).
should we lock in the interest rates now they are starting to go up for the Victorian property or stay variable. Gets so confusing.
would appreciate any feedback as were no experts.
cheers
What do you think have house we live in and 2 investment properties one only have small amount to pay off but other is a new one nearly built in Victoria (im from Adelaide).
should we lock in the interest rates now they are starting to go up for the Victorian property or stay variable. Gets so confusing.
would appreciate any feedback as were no experts.
cheers
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