We have a PPOR which we plan to move out of in 3 month and rent. We current have a LOC (CBA Viridian LOC). Is it better to convert that to a interest only home loan when we rent or stick with the LOC?
I am looking it at it from a tax perspective. How does the ATO look at a LOC in this situation?
If I do set up a home loan I will do so with some available funds to do some on-going property maintenance which we can draw up when needed.
Hi GCP
Have you got a LOC as the only loan for the IP? An IO loan would do the same thing and will be 0.1% cheaper.
From a tax perspective, the interest on the IO or LOC loans would both be deductible – they are both securing an investment property.
Cheers
Jamie
Jamie Moore | Pass Go Home Loans Pty Ltd
http://www.passgo.com.au
Email Me | Phone MeMortgage Broker assisting clients Australia wide Email: [email protected]
Hi Jamie,
When we move out and start to rent the house it will continue to be a LOC loan (as it currently is) unless I change it to IO loan.
From what I understand if I have a LOC loan with cheque book attached I can pay council rates, water rates, property insurance etc. for the IP and it can go on the loan – plan to to do this to free my funds to pay down the non-tax deductible PPOR mortgage.
Correct me if I am wrong but I see this as the main advantage for the LOC loan versus converting it to a IO loan when it becomes a IP. I assume that the ATO does not view a LOC any different to a IO home loan for a IP when it come to claiming interest?
George
George,
If you have ever deposited money in the LOC and withdrawn it for personal expenses then your loan will be contaminated. If you keep on doing this you could end up with a large loan with none of the interest deductible.
However, if you are just using the LOC like an IO loan and then also paying for expenses for the property with the cheque book then it should be ok.
ie Do not pay anything into the loan ore than the interest. Not even temporarily.
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.
Currently for the LOC I have never deposited any funds into it – no income goes into it. I have used it to only pay for expenses on maintaining/improving the property such replacing a existing timber balcony and plumbing. I have no intention of “contaminating” the loan.
Is it fair to assume that once we start renting the property in a couple of months time and I continue the current LOC loan that as far as the ATO are concerned the “clock will start ticking” once the tenants are in from interest deductible perspective?
That is, if I have increased the amount owning slightly on the LOC loan by paying for home maintenance/improvements now the startting point for claiming interest on the LOC is when the tenants move in?
Hi GCP
I'm not an accountant but I'd assume that you'd be able to start claiming it as an IP as soon as you intend to convert it into an IP – ie. from the day you advertise it for rent.
Cheers
Jamie
Jamie Moore | Pass Go Home Loans Pty Ltd
http://www.passgo.com.au
Email Me | Phone MeMortgage Broker assisting clients Australia wide Email: [email protected]
I am not an accountant but would think that any borrowings you incur now in relation to the property should be deductible (interest mean) once the house is available for rent.
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
Jamie posted while I was writing but we have said the exact same thing!
great minds think alike!
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:Jamie posted while I was writing but we have said the exact same thing!great minds think alike!
Haha – I like how we both opened with the "I'm not an accountant but……"
Cheers
Jamie
Jamie Moore | Pass Go Home Loans Pty Ltd
http://www.passgo.com.au
Email Me | Phone MeMortgage Broker assisting clients Australia wide Email: [email protected]
Thanks guys. Yes, I meant in relation to the interest only be deductible prior to renting. Once the property is rented then the expense may be deductible or depreciable depending on what it is as well as any interest on it is if it builds up the LOC. BTW I am not an accountant either
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