Hi Guys
Currently I am living in my PPOR and the Loan is with MyRate. I am keeping some cash as redraw in my home loan account. What I have heard is that while MyRate Redraw works exactly like a offset but you cannot move to a new PPOR and make your exisiting as IP by redrawing the extra cash. ATO will consider cash out from Redraw as borrowing and would not allow tax deductibility on that amount on the newly created IP as the amount has been used for purchase of new PPOR. Is that True?
If yes, please advise what are my options. I dont have immidiate plans to buy my next PPOR but can I move my mortagage to CBA or NAB with offset facility (MISA in CBA) and then buy new PPOR in 12-18 months period. Will this be fine with ATO as then I can take cash out of my offset and fund PPOR thereby retaining tax deductibility on the whole loan amount on PPOR turned into IP.
Please advise. ThanksA redraw is nothing like an offset. Money taken from a loan is new borrowings.
If you have paid money into a loan then you cannot get it out without tax consequences. Even if you move banks now you cannot take the money out without tax consequences.
BEst thing to do is to let the loan captialise if you can (becareful of bank classing it as missed repayments).. See an accountant to set something up. Maybe you can move to a new bank and set up a split loan. Use portion of loan B to pay the repayments on loan A.
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
Terry,
Just to clarify, Can I still withdraw money sitting in redraw in the IO loan portion of PPOR and use it to fund new PPOR purchase. This should not be classified as borrowing as the original loan amount remains same and amount sitting in redraw was just there to save on interest.
I understand from what Terry explained that Amount paid into the loan cannot be withdraw (Generally in case of PI loans)Withdrawing = borrowing.
So if you took out money for a new PPOR purchase the purpose of this new borrowing is private so the interest on this portion woudn't be deductible.
eg You start of with a $100,000 loan and then come into $40,000 and pay the loan down to $60,000. You have $40,000 in redraw.
If you take this $40,000 out of the loan it is new borrowings and the interest on this new loan would only be deductible if used for investment/business purposes.
Had you used an offet account your loan balance would still be $100,000 (but you would only be paying interest on $60,000) so you would not have a problem.
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
Terryw wrote:If you take this $40,000 out of the loan it is new borrowings and the interest on this new loan would only be deductible if used for investment/business purposes.
I do not understand this part. How come this 40K redrawn from the loan becomes a new loan?
doesn't redrawing of 40K mean that the principle of the loan now becomes 100K? it's within the loan and doesn't create a new loan…Does it make a difference if you redraw 40K from the loan, which is for an IP, and use this 40K as the deposit for a new PPOR?
Very confusing…probably need to use an example and go thru the Math…
ChristinaM wrote:Terryw wrote:If you take this $40,000 out of the loan it is new borrowings and the interest on this new loan would only be deductible if used for investment/business purposes.
I do not understand this part. How come this 40K redrawn from the loan becomes a new loan?
doesn't redrawing of 40K mean that the principle of the loan now becomes 100K? it's within the loan and doesn't create a new loan…Does it make a difference if you redraw 40K from the loan, which is for an IP, and use this 40K as the deposit for a new PPOR?
Very confusing…probably need to use an example and go thru the Math…
I think it is pretty straight forward.
Deposit into a loan = repayment
Withdrawal from a loan = new borrowings.From a tax point of view it makes sense too. You originally borrowed money to buy a house. You paid the loan down. Now when you take out the $40k what will you be using it for? the purpose is diffferent and this will determine whether the new loan is deductible or not.
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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