Hi,
First post here, I hope someone can clear this up for my wife and I.
We currently are living in our first home which we have paid quite a bit off the loan. We bought a block of land so we can build a new PPOR and keep our first one as an IP.
Here is some background on what we where advised to do.
So what we did was refinanced our loan and redrew all that we could and place it in a offset account to IP loan, but we will be using that money for buying and building our new home.The investment property/loan is now at 80% of the house value my question is, is the whole amount tax deductible like any other invest loan or do we need to sell it then buy another investment property?
Any help would be greatly appreciated.
Thanks
No, the whole amount will not be deductible.
Deductibility will depend on what the borrowed funds are used for. Taking money from redraw is reborrowing – so the interest on this portion will only be deductible if used for investment/business purposes – you will be using it to purchase a new owner occupied property.
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 have a question along similar lines
my partner and i live in my ppor in darwin(in my name and been here for i3+yrs)and wish to move into a unit for lifestyle reasons.
my plan is to purchase new place in her name only(first home buyer) then rent my place out and retain benefit of cgt exemption if and when we decide to sell.
my questions are
can i load my ppor up with debt from the new place
can we buy a place with an existing lease and still claim the cgt exemptionthanks
3 points
spouses can only have 1 PPOR at anyone time between them
– you cannot establish a place as your PPOR until you live in it
– debt is only deductible if it was borrowed for an investment or business pupose so loading up your PPOR – will depend on what the borrowed funds are used for.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 Terry
So is there no loop holes i can use? even if the redraw now sits in an offset account for almost 6-12 months it makes no difference?
so do we need to sell this property, then buy another investment property to make it all taxable/legal?
Thanks for advice.
Taking money out of a loan = borrowing. So if you borrow you have to look at what the money is used for. Putting the money in an offset account won't make the interest deductible I am afraid.
Selling would help, but it will be very costly. You will have loan exit fees, RE commission, legals out and into the new house too, stamp duty. You will have to do the sums and see if the interest savings are worth all the expenses.
Another slower option is a debt recycling strategy where you set up a LOC and then borrow for all expenses associated with the property. This will free up cash which can be used to save interest on your non deductible home loan. You need careful advice to implement this.
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
ok thanks again Terry,
Maybe a silly question, But can we keep our first property and leave it as our PPOR and nominate the one we are building as the investment, even though we are living in it, so we still only have on PPOR.
I've heard people doing this when their investment property's are in higher growth areas.Thanks
yes, you may be able to do that. you can be absent from your main residence for up to 6 years and rent it and it can still be CGT exempt.
The only problem in your situation is that if the loan is very low you may have to pay tax on the rent and you also will have to pay the interest on the new one. So it would only help with the CGT 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 Terry for your quick response.
But will the interest on the new property be taxable just like any other investment property?
I think our financial/broker steered us in the wrong direction here…really appreciate your advice
If you are living in the new property then the interest wouldn't be deductible. Only if it is rented out.
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 again Terry.
So in your opinion what would be our best course of action here? not sure what to do.
Do the sums and then reassess
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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