I would greatly appreciate some advice in regard to the following…
I have an IP with about $100,000 equity and my PPOR with about $200,000 equity. On both I owe around $90,000.
I have been studying and looking long and hard at buying another IP and feel that it could soon be the time as an interest rate rise looks imminent and several real estates have admitted that properties are starting to take much longer to move out the door than a month or so ago.
My question is whether I should borrow against the IP or my PPOR and why. Both existing properties could do with a cash injection which I would like to arrange at the same time as the refinancing occurs.
Any wisdom shared would be appreciated.
it doesn’t really matter that much. Use the Ip equity first and then the home equity. If things go bad you will want to protect your home first.
Terryw
Discover Home Loans
North Sydney
[email protected]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
If you use the available equity in your IP you can claim the extra interest as a tax deduction as you are buying an income-producing asset.
If you use the available equity in your PPOR you can also claim the amount of interest above and beyond the interest you already pay, however it then makes your home liable for CGT if you ever sell it. It will only be liable for that extra part that you have borrowed, however in my book it’s not worth it. You would already have to pay CGT on your investment property so I believe you would be better off taking the money out of that one.
Hope this helps
Lucky One,
I am not aware of this. Have you a reference to the PPOR being liable to CGT should equity be borrowed against for an IP.
Thanks,
Simon Macks
Mortgage Broker
[email protected]
0425 228 985Comments may not be relevant to individual circumstances. If you intend making any investment, financial or taxation decision you should consult a professional adviser.
Simon,
It would only be if you were to claim the tax deductions along the way for the extra interest that you have incurred on your PPOR borrowing for your IP. I was actually told this by my mortgage broker so have assumed it to be correct. I will have a look for the legislation. I remember reading it on the ato’s website a while ago. I’ll post it here when I find it.
LuckyoneFrom the ATO’s section on Capital Gains Tax.
http://www.ato.com.au/individuals/content.asp?doc=/content/31570.htm&page=10#H4_6
Main residence
Generally, you can ignore a capital gain or capital loss from a CGT event that happens to your ownership interest in a dwelling that is your main residence (also referred to as ‘your home’).To get full exemption from CGT:
the dwelling must have been your home for the whole period you owned it
the dwelling must not have been used to produce assessable income, or
any land on which the dwelling is situated must be 2 hectares or less.
If you are not fully exempt, you may be partially exempt if:the dwelling was your main residence during only part of the period you owned it
you used the dwelling to produce assessable income, or
the land on which the dwelling is situated is more than 2 hectares.
Short absences from your home — for example, annual holidays, do not affect your exemption.I think the point in questions is the following:
“the dwelling must not have been used to produce assessable income,”
It is my understanding that this refers to the rental of part of the home or the use of the home for business purposes such as a home office or workshop – where you have claimed a portion of the utilities and interest.
Can anyone add any further info?
Cheers,
Simon Macks
Mortgage Broker
[email protected]
0425 228 985Comments may not be relevant to individual circumstances. If you intend making any investment, financial or taxation decision you should consult a professional adviser.
Luckyone,
Just talking to some colleagues and am going to go out on a limb here and say your broker is wrong.
Are there any accountants out there who can advise?
Have a great weekend!
Cheers,
Simon Macks
Mortgage Broker
[email protected]
0425 228 985Comments may not be relevant to individual circumstances. If you intend making any investment, financial or taxation decision you should consult a professional adviser.
Not an accountant, but luckyone’s broker is wrong, wrong, wrong.
The PPOR in this instance is being used as security for the loan. In no way has it changed the purpose for which the home is used. It is how the home is used that determines CGT liability, not if there is borrowing against it used for investment or otherwise.
Cheers
MelMel,
Don’t beat around the bush do you?
But I do agree…..I was trying to extend a little professional diplomacy [
]Have a great weekend!
Simon Macks
Mortgage Broker
[email protected]
0425 228 985Comments may not be relevant to individual circumstances. If you intend making any investment, financial or taxation decision you should consult a professional adviser.
Well, sorry guys certainly don’t want to say anything that’s inaccurate on this forum. It was just what my broker said and I had no reason to believe otherwise. I thought I had read something about it on the ato’s website, but was unable to find the reference I was looking for yesterday afternoon or this morning. I will post it if I ever do manage to find anything that back’s up what my broker told me.
Anyway, sorry everyone [
]Hey guys
I wasn’t having a go at anyone on the forum, especially not you luckyone. I was just wanting to make sure that there was no ambiguity about whether or not what he was saying could be right.
If I have offended, I apologise.
Cheers
MelMelbear, no offence taken at all. I shouldn’t have posted the post without ensuring what I was told was accurate. I feel bad for doing so.
LuckyoneLuckyone
Personally, I think that posting that sort of comment is good, for the one posting and for us. If we think/know it to be different, we can offer alternate opinions. It can also make us question what we believe.
If I believe something is true, and I post it, I am more than happy to be corrected. If I believe it to be true, I will probably not go looking to confirm it, and therefore be ignorant forever more, so it would be a good thing for others to say, no, hang on, that’s not right.
Don’t feel bad, just don’t do it again![
] Kidding.Cheers
Mel
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