9ball, you can only get rid of your non-deductible debt by paying it down with after-tax dollars (ie your savings). If you take out a loan to pay it off, then you've simply changed which asset secures your non-deductible debt!
The factor which determines whether a loan's interest is tax deductible is always the PURPOSE of the loan funds, rather than the asset against which the loan is SECURED.
Any loan taken out for private purposes (eg paying off PPR debt, holidays, cars, etc) has non-TD interest, regardless of which asset secures the loan. And by contrast, a loan against your PPR is TD if the purpose is for investment or business.With regards to your "how would they know the purpose?" question – the same could be asked of any tax deduction claimed. Australia has a self-assessment system, which means that you can effectively declare any income and expenses that you like. It's an honour system, really; but to provide incentives for honesty, it's coupled with stiff penalties for dishonesty/"errors". The onus in an audit would be on you to demonstrate that you've spent the complete amount of the loan (whose interest is being claimed) for investment purposes, eg with receipts and bank transfers, settlement statements, etc.
Hope this makes the situation crystal clear!Hi Trakka, Richard Thanks for your replies, It has been interesting discussing the subject and I can see that the purpose of the original loan would not be directly for investment purposes. This is “crystal clear “as you put it Trakka, and I would not attempt to try and claim it as otherwise, in fact it was Scottybe’s question regarding “how would they know the purpose”, not mine. I suppose I did hijack his thread and perhaps confused things slightly. As to the pro’s and cons of structuring further borrowing with a LOC secured against my PPR or using an interest only offset loan I suppose that subject may need further discussion. Depending on what my future plans are, I think that I may need to start a new thread as things may get complicated later on. Thanks Richard for your input on that. Cheers, 9ball.
Hi Trakka, Richard
Thanks for your replies,
It has been interesting discussing the subject and I can see that the purpose of the original loan would not be directly for investment purposes. This is “crystal clear “as you put it Trakka, and I would not attempt to try and claim it as otherwise, in fact it was Scottybe’s question regarding “how would they know the purpose”, not mine. I suppose I did hijack his thread and perhaps confused things slightly.
As to the pro’s and cons of structuring further borrowing with a LOC secured against my PPR or using an interest only offset loan I suppose that subject may need further discussion. Depending on what my future plans are, I think that I may need to start a new thread as things may get complicated later on. Thanks Richard for your input on that.
Cheers,
9ball.Hi 9ball
If you are wanting to stay in your current PPOR and wish to draw on the available equity then a LOC is the way to go.
If you utilise the offset account and then use these funds for your deposit and acqusition costs then you are using your own funds and not the lenders thus reducing your tax deductible interest.
Richard Taylor | Australia's leading private lender
Hi Richard,
The LOC is the way i am thinking of going but you have certainly explained the pro's and con's. I need to sit down and work out my best structure depending on my future plans. I will either PM you or set up a new thread so that i can get some further input on the subject.
Thanks again.
9ball
Pleasure mate.
Happy New Year.
Richard Taylor | Australia's leading private lender
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