Hello everyone, great forum BTW.
I have a question. We are purchasing our first investment property and after doing some reading I am not sure if we have made a mistake when it comes to the deposit and structure.
We have a PPOR with a redraw account (turning it into an offset account very soon). When we exchanged the contracts we withdrew funds from the withdraw account as a deposit of 10% of the IP.Does that mean that we essentially won’t be able to claim interest tax deductions for that amount of money. Because currently our PPOR redraw account has less money on it which is earning higher interest (which i can’t claim) and the eventual IP will have 10% deposit but won’t help me with interest tax deductions.
Please help.
Hi there
Speak with a good accountant.
If it's a once off and easily identifiable – then I can't see why the interest on that portion couldn't be claimed. However, I'm not an accountant so would recommend you seek professional advice.
With the offset – you don't lose the redraw facility. You just stop using it – and use your offset account instead (ie. you don't swap the redraw facility for the offset account, you'll just be left with both).
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]
What you have done is to create a mixed loan.
eg you had $90,000 outstanding on your PPOR loan.
You borrowed $10,000 from redraw and used for investmentThis is just a $100,000 loan in which 90% of the interest relates to the PPOR and 10% to the investment. So 10% of the interest each month should be deductible.
But, there is a problem because any repayments you make to this loan will need to be apportioned. So if you pay $1000 per month then $900 needs to come off the PPOR portion and $100 off the investment portion.
This is not ideal as you will be paying down investment debt when this could be coming off your PPOR debt.
So, what I suggest you do is to split your loan asap. You will then be able to divert more money to paying down non deductible debt and improve your tax position. It will save you thousands over the years.
You might even take the opportunity to refinance and get a better rate while improving the structure too.
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:So, what I suggest you do is to split your loan asap. You will then be able to divert more money to paying down non deductible debt and improve your tax position. It will save you thousands over the years.You might even take the opportunity to refinance and get a better rate while improving the structure too.
Hi Quimby, i mean Terry.
Thank you for responding. Can you please explain a bit more what you mean split the loan? I already paid the money out of our redraw and really won't to maximise the deductions and fix anything that was done incorrectly.Would this problem be avoided if we paid the deposit out of the offset account?
Ok, mayor quinby here.
You have accidently ended up with a mixed purpose loan by combining business with pleasure. But all is not lost because the ATO will allow you to split the loan and recover.
In my eg above you had a $100,000 loan.
You could simply split this up into 2 separate loans of
$10,000 for the investment and
$90,000 for the main residence.Then you can relax and start paying the $90,000 loan down asap and saving non deductible interest while maximising 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
Terryw wrote:Ok, mayor quinby here.You have accidently ended up with a mixed purpose loan by combining business with pleasure. But all is not lost because the ATO will allow you to split the loan and recover.
In my eg above you had a $100,000 loan.
You could simply split this up into 2 separate loans of
$10,000 for the investment and
$90,000 for the main residence.Then you can relax and start paying the $90,000 loan down asap and saving non deductible interest while maximising deductions.
Can I add a spanner into the equation. We currently have a split loan of about 25% variable, and 75% fixed. It ends in August this year. Would that mean i will have to wait till it ends?
Also say our loan is now 100% variable on the PPOR. so i split it, meaning I have a three separate loans. one for the IP, a small one for the IP and the remaining PPOR loan?
Is that correct?Fixed loan may complicate things.
Can you give some rough figures of what the portions used were?
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:Fixed loan may complicate things.Can you give some rough figures of what the portions used were?
The fixed loan ends in August, so could I wait till then?
the PPOR loans looks like this:
Variable 45K DR (this loan has funds in the redraw account)
Fixed 200K DRWhat portion was used for investment purposes and which loan?
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:What portion was used for investment purposes and which loan?The variable had the redraw, so we used the money from it.
How much did you use?
You would have to split the variable into portions – investment portion and non investment portion. But since it is a very small loan any effect would be very small and it may not be worth the effort.
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:How much did you use?You would have to split the variable into portions – investment portion and non investment portion. But since it is a very small loan any effect would be very small and it may not be worth the effort.
we took out just a bit over 24K which was the 10% deposit.
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