I've been reading a lot of good info on this site regarding redraw tax implications but still having trouble getting to grips with it all.
I have a 400k loan with 100k available to redraw. I'm hoping to redraw these funds in the future to purchase another property which would initially be a PPOR before turning it into a IP in 2-3 years. How best can I access the 100K redraw amount without losing the ability to seek a tax deduction on the interest of the 100K? Some options I have considered are:
1. Could I refinance the current loan and increase the loan amount back to 400K then put the 100 into offset until I need it for the 2nd property?
2. Is there anyway of redrawing the 100K and placing it in the offset and overtime being able to utilise it without negative tax implications?
3. Probably most likely – Redraw 100K from a loan and use this to purchase a 300K PPOR which would then be converted to an IP 2 years down the track. I assume I would then be entitled to claim an offset on the 100K
As I understand it I would not be able to get claim an offset initially while living in the new PPOR however once it was turned into an investment property I would be able to seek a tax deduction for the interest on the 100K?
No matter how much I read about this it is all very confusing, or perhaps I'm overcomplicating things?
Hi and welcome aboard.
I wouldn't redraw the money – it will complicate the deductibility of the loan (mixing non deductible debt with deductible debt).
I'd set up the new loan as a separate $100k loan split.
Use it to cover deposit/costs on the next purchase.
The overall structure you'd be look at would be.
Property 1
Loan 1: existing loan against property
Loan 2: separate loan set up to cover the deposit/costs on property 2 (the redraw funds)
Property 2
Loan 3: separate, stand alone loan to cover the remaining portion for property 2
Keep all loans IO with an offset against the one you live in. That's what I'd do anyway.
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 Jamie, I had not considered a loan split. Although thinking through it now I'm still not quite sure how the second 100K loan gets me around the deductability issue?
You can't get around making that $100k deductible right now.
It will become deductible later when the property you purchase becomes an IP.
The main reason for the separate loan spit now is to avoid contaminating your current loan with a mix of IP and PPOR debt – or as Terry W puts it, mixing urine with water.
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]
ignoblis wrote:I've been reading a lot of good info on this site regarding redraw tax implications but still having trouble getting to grips with it all.I have a 400k loan with 100k available to redraw. I'm hoping to redraw these funds in the future to purchase another property which would initially be a PPOR before turning it into a IP in 2-3 years. How best can I access the 100K redraw amount without losing the ability to seek a tax deduction on the interest of the 100K? Some options I have considered are:
1. Could I refinance the current loan and increase the loan amount back to 400K then put the 100 into offset until I need it for the 2nd property?
2. Is there anyway of redrawing the 100K and placing it in the offset and overtime being able to utilise it without negative tax implications?
3. Probably most likely – Redraw 100K from a loan and use this to purchase a 300K PPOR which would then be converted to an IP 2 years down the track. I assume I would then be entitled to claim an offset on the 100K
As I understand it I would not be able to get claim an offset initially while living in the new PPOR however once it was turned into an investment property I would be able to seek a tax deduction for the interest on the 100K?
No matter how much I read about this it is all very confusing, or perhaps I'm overcomplicating things?
1. No
2. no
3. maybe
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 Jamie, really appreciate the advice.
If I were to redraw from the current IP and put it into another IP that wasnt my PPOR (or for that matter another income producing investment) would I have anything to worry about?
ignoblis wrote:Thanks Jamie, really appreciate the advice.If I were to redraw from the current IP and put it into another IP that wasnt my PPOR (or for that matter another income producing investment) would I have anything to worry about?
No not really because it would all be IP related so all deductible.
You might come undone if you ever decide to live in one of the properties though – that's where it can be a good idea to set up the correct loan splits from the start.
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]
Jamie M wrote:Property 1
Loan 1: existing loan against property
Loan 2: separate loan set up to cover the deposit/costs on property 2 (the redraw funds)
Property 2
Loan 3: separate, stand alone loan to cover the remaining portion for property 2
Keep all loans IO with an offset against the one you live in. That's what I'd do anyway.
Cheers
Jamie
^ That's the way i would do it as well.
3 loans in total – one for the existing, one for the split and a 3rd one for the new property.
Mick C | Shape Home Loans
http://www.shapehomeloans.com.au/
Email Me | Phone MeSame Banks. Better Rates. Served With a Passion.
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