So say for example I wanted to redraw $2000 from my home loan (IP) to invest in shares or managed funds. The interest on the borrowed $2000 would be tax deductible since I'm using it for investment purposed. Now to purchase these shares I'll have to redraw into my savings account where it will "mix" with my personal savings. Is this going to be a problem? And suppose my purchase (due to fluctuating prices) ends up being say $1999, is the extra $1 I have left over going to create any issues? Is it worth creating a completely new account to house this money so that I can point to the account and say it is purely for investment purposes.
I have no idea about the tax, seems pretty complex! Make sure you know that if you were take $2000 out of your home loan and invest elsewhere (assuming you are paying say 7% interest), then that $2000 would have to MAKE at least 7% just to break even. That's the correct assumption isn't it?
Good luck!
morpheusbushy wrote:that $2000 would have to MAKE at least 7% just to break even. That's the correct assumption isn't it?Hoping for at least 9%. In research mode at the moment. One line of thinking is that if, say 1-2 years down the track, I need to I can sell the shares/funds and use that money for personal reasons after CGT of course. Whereas if I redraw that money out, I can't claim back tax on the interest.
Yes but when you sell the shares you can't claim the $2,000 as a tax deduction anymore.
You can only claim on an investment. If you don't have them anymore then it's not an investment.Gets messy.
Either way, it’s always good to diversify some of your money!
There will be two tax issues (at least):
1) By using redraw you are mixing one loan – business and personal. When you claim interest it must be apportioned, which is relatively straight forward. But if you are making loan repayments you cannot chose to repay the personal debt first. Both must be repaid in proportion to the loan.
eg. $98,000 loan with $2,000 redrawn. = 2% investment, 98% personal
You then repay $1,000 into the loan. 2% of this must come off the investment portion, 98% off the personal.This is not ideal as you would want to pay down personal before investment, to increase tax deductions.
It also complicates things if you were to redraw again – it will be difficult to measure the interest attributable to each portion. easy the first time, but it will get increasingly hard to work out.
So best to get a separate loan set up (I am assuming your $2k eg is just an eg and you will be borrowing more, otherwise it is probably not worth claiming).
2). The second issue to getting the money out. If you borrow from the loan and park into the savings account then you will lose the connection between borrowing and investing and the interest will probably no longer be deductible, especially if there is other money in the account. This is because you are borrowing to invest in a savings account with a lower interest rate. Once it is in the account it is no longer borrowed funds.
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
Terryw wrote:There will be two tax issues (at least):1) By using redraw you are mixing one loan – business and personal. When you claim interest it must be apportioned, which is relatively straight forward. But if you are making loan repayments you cannot chose to repay the personal debt first. Both must be repaid in proportion to the loan.
But the homeloan was for an investment property so the loan itself shouldn't be mixed. It's the drawing it out and working out where to put it while in the process of investing somewhere else which is the mixing. At least that's how I understand it. Happy to be proved wrong, but I think on that point you may have misunderstood my train of thought.
niyiaw wrote:Terryw wrote:There will be two tax issues (at least):1) By using redraw you are mixing one loan – business and personal. When you claim interest it must be apportioned, which is relatively straight forward. But if you are making loan repayments you cannot chose to repay the personal debt first. Both must be repaid in proportion to the loan.
But the homeloan was for an investment property so the loan itself shouldn't be mixed. It's the drawing it out and working out where to put it while in the process of investing somewhere else which is the mixing. At least that's how I understand it. Happy to be proved wrong, but I think on that point you may have misunderstood my train of thought.
Oh, ok, sorry about that then it wouldn't be that much of a problem. Mixing business and business results in the same overall tax deductions if you get the portions wrong.
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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