It can be done indirectly and over time but borrowing to pay all investment related expenses and diverting cash to the new place.

You can.

But what if it is not enough, and you have equity in the old PPOR. This will mean you are paying more interest on the PPOR with this not being deductible. So you need a way to squeeze out some equity from the old PPOR without compromising tax deductibility of it.

Be careful about borrowing money and putting it in an offset account before using it to invest. You could be breaking the connection between borrowing and investing.

You may also be able to borrow a bit extra to use to fund the payments.

I know someone who borrowed up to $500,000 from a private investor at 15% for a number of properties. He has now done a runner, not paying any loans for ages. Banks are repossessing his properties and the private investor is unlikely to get anything back.

One of my clients owned half the town down there.

Its a different sought of world down there.
-There is only one or 2 agents so little choice.
– Cheap houses are falling down,
– banks are not keen to lend down there,
– high rates compared to value
– mines closing
– hard to find a builder

I have another client who did 2 renos there. He is a builder and put in a new kitchen which was worth almost as much as the house – and it didn't add much value.

Oh, there is a third client who has a property down there with it positive geared from day one. He is letting it pay itself off with a PI loan. That one is going well.

I have another one,

When one bank says no, don't give up, but try elsewhere. I remember being knocked back for my first loan and just gave up. If only I had got that property…….

Hi K

What the ATO said Sounds reasonable. Maybe you should apply for a private ruling?

I think what you need is a tax lawyer as interpretation of legislation is needed.  Even if the advice costs a bit it may be worth it. Get the advice in writing and rely on it, if it is incorrect you may have a claim against them. Being extra cautious you could apply for the private ruling.

If you just pulled money out of a LOC the interest wounldn't be deductible. So after many years you would end up with a very large loan with none of the interest deductible.

I have been thinking about something slightly different.

very roughly (haven't thought this thru properly yet):

what you could do is pull out some equity and invest in shares with high yielding dividends. Maybe even margin loan with a low LVR and then capitalise the interest while living on the dividends.

eg. you have $1,000,000 in equity in the form of a LOC.
1. You take out $50,000 pa to live on. The interest on $50k would be about $3,000. So you get $47,000 to live on.

or

2. you take $500,000 worth of shares. get a 30% margin loan and buy another $200,000. so total shares worth $700,000.
Interest is $30,000 on the LOC and $16,000 on the margin loan (assume 8%) = $46,000. You don't pay this interest, but let both loans capitalise.This interest should be totally deductible.

Your $700,000 in shares return 7% = $49,000 (high returns because of high yielding shares with franking credits) .
But your interest is deductible so your taxable income is $3,000 and no taxpayble.

Your shares grow at say 5% = $35,000 increase in year 1.

Maybe the figures could be improved by borrowing $700,000 from the LOC initially.

I am trying to get to the point where all interest is deductible and you just live on dividends or maybe even rent or a combination.

I have been a broker for 8 years and have never used one of those computer programs – they are generally useless.