I am considering purchasing a property which has 2 dwellings on the one title. The larger residence will be used as my PPOR and the smaller dwelling will be rented out. The property is around 10 acres and there would be around 4 acres useable for agisting horses.
In order to be able to claim some of the loan interest as a tax deduction how should I set up my loan.
Do I need to get a property valuer to determine the value of the smaller dwelling and the value of the land used to agist the horses and thereby determine what percentage of the property is used for 'income producing purposes'?
Should I then split my loan into 3 parts. One to cover the percentage of the property value which represents the IP, another to represent the land value of the paddocks and one for the PPOR, in order to keep things separate (incase I chose to use the paddocks or the IP myself at a later time). Can I make the IP portion and the paddock portion equal to 100% of their value in order to maximise the tax benefits?
I would obviously then direct all income to pay down the PPOR portion first.
Any advice would be greatly appreciated
Reddog
If it's under one title I don't see how you can split it.
Like a house that you live in and use a room for business it goes as a % of the total property.
You need to speak to a solicitor and a property accountant.
You could split the loan on purchase. But you couldn't attribute more than a fair split to the investment portion.
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 replies Terry and Catalyst.
The purposes of splitting the loan would be to:
1. Simplify the process of determining what interest charges are tax deductible
2. Enable income to be directed to pay down the P&I on the PPOR only, while keeping the part of the loan for income producing assets as Interest-only repayments, since this interest would be tax deductible.
I would like to have this structure established from the start of the loan. Do lenders allow loans for a single property (with multiple dwellings) to be structured like this?
I appreciate that the split would need to be proportioned to reflect the true ratio of income producing assets to non-income producing assets. I would not be looking to gain any tax advantage be over representing the income producing portion.
If the loan was 80% of the total property value, would i need to also have each split representing 80% of the income producing assets and 80% of the PPOR? or could I have a split equal to 100% of the income producing assets and the remainder of the loan attributed to the PPOR?
Is there a better way to be doing all of this?
Regards
Reddog
If it is one title then you would need to apportion your loans accordingly. ie. you can't artificially have all the debt on the investment portion and none of the other portion.
Check with your accountant about deductibility of interest.
And banks split loans all the time so you shouldn't have a trouble from this end.
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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