Hi all,
Having read a few threads lately about converting PPORs to IPs and the problems with the deductability of the loans on redraws etc, I was wondering how this scenario would play out…
Let's say you've repaid a fair amount on your PPOR, decided to upgrade and use the old property as an investment. If you used the redraw facility to redraw say 50K before you move (for deposit/stamp duty/settlement costs) and parked it in an account short term, then rented the property out later on down the track – would the loan balance after the redraw be completely tax deductible once the property becomes available for rent?
Any opinions on this?
Cheers
Probably not because of the date of redraw and the date of rental, but best to check with your property accountant. There are other issues and benefits with regard to renting your previous PPoR. Best you check out the possibilities.
Ian
http://www.theblockblog.com
Free Property Investment Info, Tools & Resources for Investors … with a Sense of Humour.That's an interesting one – I wouldn't have thought so but best to put it to an accountant.
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]
The loan amount after redraw would not be completely deductible. The redrawn $50,000 would be treated as a separate loan. Since you have borrowed this to park into a separate account the interest would not be deductible.
This is why it is important to get the structure right. If this really did happen, ie you were $50,000 ahead in your home loan and then wanted to move out and rent it, thent he lost deduductions would be the interest on the $50k = $3,500 pa. This means every year you could have beeb claiming $3,500 more in tax deductions. Think of the compounding effect that savings could have had.
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 for the responses guys – I'm thinking its definitely something to put to the accountant but I'm thinking it might not work as a strategy somehow.
The only other thing I could think of would be – if you were to redraw funds to rennovate/refurbish the property and then used as an IP down the track would the redrawn portion be tax deductible?
Cheers
There may be an option if you are prepared to move it to joint names (not sure of your situation). Obviously you need to get advice but here is an idea:
If the PPOR is in your name you can sell half to your spouse. If you do this while it is still your PPOR many states allow this without any stamp duty.
Your spouse borrows the money which you can then use towards your new PPOR.
If you then each earn half the rent against a higher mortgage.
There are anti avoidance provisions, etc but it might be worth looking into.Redrawing funds to reno or use on that property would make the loan deductible when the property is rented out – but you would have expended the funds anyway.
Sharve's post has merit. Especially in VIC where there may be no stamp duty payable.
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 appreciate all the insight guys, I've got a better picture of how to approach the situation in the future now.
Thanks very much!
You must be logged in to reply to this topic. If you don't have an account, you can register here.
