All Topics / General Property / Fully Owned Property in SA but not PPOR
- LC888 wrote:Another question – is remortgaging the same as having a line of credit using my fully owned home as an equity?
Mortgaging is a common term used to describe borrowing money (mortgage actually means taking a charge over property).
Obtaining a LOC is a form of borrowing.
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
Another issue (never ending!). So, I took the line of credit (LOC) using my fully paid PPOR as the equity. As I was waiting for the line of credit to settle, I needed to pay the 10% deposit on the IP which I was going to use the LOC for. My broker told me that I can just pay it from my own cash and then reimburse myself once the LOC was settled. So, that's what I did. Unfortunately, after that, I found out from my tax accountant that if I reimburse myself, the interest on the amount would not be tax deductible as I have to pay the third party directly from the LOC in order to get tax deduction on the interest. Is this true? Can't I just provide the details of the transfer I made for the 10% deposit to prove that I used that money for the IP?
LC888 wrote:Another issue (never ending!). So, I took the line of credit (LOC) using my fully paid PPOR as the equity. As I was waiting for the line of credit to settle, I needed to pay the 10% deposit on the IP which I was going to use the LOC for. My broker told me that I can just pay it from my own cash and then reimburse myself once the LOC was settled. So, that's what I did. Unfortunately, after that, I found out from my tax accountant that if I reimburse myself, the interest on the amount would not be tax deductible as I have to pay the third party directly from the LOC in order to get tax deduction on the interest. Is this true? Can't I just provide the details of the transfer I made for the 10% deposit to prove that I used that money for the IP?Yes, your broker was incorrect and should not be providing you with tax advice. The accountant is correct.
Interest is only deductible on money borrowed and used for investment purposes. You have paid cash for something. You cannot later replace this cash with borrowed money and claim the interest because you have completed the transaction. You cannot borrow from yourself.
What you could have done is to borrow from a third party temporarily and then refinanced this loan with the LOC
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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