Hi Experts,
have been visiting this website alot to read some valuable info, and i decided to post my own question today
I am ready to purchase another property and would like to move in to that property and turning current one into investment property.
I have stayed at current place for 2 1/2 year and currently the property worth 380k and my mortgage is showing 268k with 49k available for redraw (it's not an offset account)
After reading so many threads about this subject in this forum, I am horrified by my finding that my current strategy to pay as much as possible to current mortgage and redraw it later on has actually backfired.
My understanding is i wouldnt be able to redraw the 49k to be used as deposit for another property (PPOR) as it would be deemed as private use and even if i do that, my claimable interest will be on 268k (if i take it out today) instead of 317k which is what the loan value supposed to be.
My question is, can i refinance both of the property through another bank, for example if i take 90% loan and borrow 342k (90%) against current property (which raise me 74k for deposit on ppor), and claim tax on 342k interest?
So i would have 2 accounts, one is investment with 342k balance, and the other one is my PPOR account, is this feasible or just outrightly illegal?
Regards
ASk if you can get a Line of Credit loan facility with the Lender rather than redraw but you may only get 80% LVR.
if you refinance to 90% then 74k of loan is for private use as I am assuming you mean the IP you are thinking of buying has somehow become the new PPOR. You can't claim interest on the whole 342k as 268k will be investment and 74k will be private use. This will be very messy to work out your tax for interest payments.
If you can get a 90% LOC then you can have a seperate line of credit loan on PPOR used for the sole purpose of investment.
It is the purpose of the loan that counts !what if i redraw now, months before i purchase another property to become my ppor, that would be good idea as well yeah?
Redraw = borrowing.
If you redraw now the extra interest on this portion of the loan will only be deductible if the purpose for which the money was used is investment/business.
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
But at this point my current mortgage is not tax deductible because it’s a ppor, so if I redraw now as opposed to when it’s turned into investment property, isn’t it fair to assume that should be ok?
Why?
What are you withdrawing the funds for? You must look at the purpose the funds are borrowed for.
If you withdraw funds to deposit into a savings account and then use to pay down your new loan, then the interest wouldn't be deductible.
If you withdraw funds to make a new carport on that property and that property later becomes an investment then the interest on the funds would probably be deductible when the place became an investment.
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 see what you mean Terry, but how would they know considering when I turn this ppor to an ip I would refinance the loan anyway. Therefore the only thing that’s apparent was my starting new loan, which will be the total loan value minus the money I have withdrawn.
The redraw is for new ppor deposit by the way.
Regards
If you get audited the ATO usually send out a letter first asking what the balances of loans are and if any money has been redrawn from the loan etc.
The chances of getting audited as pretty slim, but it is still possible.
The tax law says you cannot do what you want to do and claim a deduction. Whether you want to or should do it properly is a different matter,
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
Thanks Terry that’s perfect answer
cheerssorry to bring this one up again
how about this scenario, please let me know if im totally losing itsay, i bring down my current mortgage to 250k, i then go ahead and purchase another property for 500k. My current property worth 380k right so my total security will be 880k.
I then go and refinance my current loan with another lender, so from 880k security, say i will get 90% loan so that makes it 792k maximum i can borrow
but because the new house is 500k plus current loan at 250k, that will come to total loan of 750k, where 250k will be on separate account for easy tax calculation and 500k on my new ppor loan.is this scenario feasible? i will be able to use my redraws without actually redrawing it and is this legal from tax perspective?
thank you
I am not sure what you are getting at.
You will have 2 loans still, one for $792,000 and one for $250.000. If the first is an investment the interest on this should be deductible. same for the second.
Or are you saying you will combine both loans into one $792k loan?
This wouldn't make any difference, the only deductible part would be the $250k (assuming the new property is the PPOR). In fact this would be worse, because with each repayment part would have to come off your investment portion too. So you would be reducing your investment loan and missing out on more deductions.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
Yes I will refinance to a total of 750k and split it to 500k and 250k structure. What I am trying to get is to utilise my redraws without changing the loan amount or redrawing the money
sorry if I sound confusing, I am confused myself
it’s just abit unfair we can’t redraw our extra repayment for private use without tax issue down the road
Why is it unfair?
If I borrowed $10,000 to use for a holiday it wouldn't be deductible. Its the same thing.
There was a way around it – you could have not paid money into the loan. You could have had an IO loan with a 100% offset and saved the same amount of interest. But you just didn't understand at the time. Most people don't. You will be right for the next one now.
And there is a way around it anyway. You can slowly increase your loan and increase your deductions.
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
You are right, I didn’t understand it before
guess I just have to swallow it this time or start fresh by selling this property to avoid all sort of issues in the future
cheers
99% don';t understand. But the good thing is you will be right for the next one.
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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