hey kids how are we all, i was just thinking and i thought i would post the question to you guys to see what you think.. my current situwation is this..
IP worth $110,000+ owe $60,000
PPOR worth $170,000+ owe $120,000i earn around 45k a year so would it be worth taking out the equity from my IP and paying it straight into my PPOR as the repayments on the the IP are tax deductable and all that.. this would make my house -ve geared, but i’m paying the intrest on my PPOR with no deductions or anything.. so what do you think?
NEO
NICE ONE BRUVA!! Nice One Bruv! nice one
Sorry mate,
You will be creating a new loan on the amount you draw from the IP. The purpose of this loan is for your PPOR so non deductible.
However if the money was in offset you would be OK as you are not touching the original loan.
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.
Excellent post from Simon! Most mortgage brokers (oh dear, I’m going to generalise here) are all to happy to suggest to shift funds from one to the other- 3 different ones told my wife it would be fine and tax deductable! If I got audited a few years down the track I would probably be bankrupted by the ATO!
Thankfully, my chartered accountant is also my father (or should that be the other way around?). The deductability is determined on the PURPOSE of the loan and what you PHYSICALLY did with that cheque, not the underlying security.
OOPS, sorry, it is possible to do, but is a major cow to do. You can refinance the loans, but you must physically use the (large) loan to buy the property which will be the investment. This may mean selling to another party ie from spouse to spouse, and yes, you will have the joys of paying stamp duty.
Hmmmmm, lets see if I can put my brilliant mind to finding a solution for you.
Change the investment loan to IO, then try to pay as much of the PPOR off.
Next investment house, refinance and redraw off the INVESTMENT loan to fund the next house, and again use IO for as long as you can, but make sure that you put the extra on the mortgage!
Starting up a business? or want to trade shares, etc, then make sure that you draw down the inv loan.
Hope this makes things a bit easier
Originally posted by MortgageHunter:Sorry mate,
You will be creating a new loan on the amount you draw from the IP. The purpose of this loan is for your PPOR so non deductible.
However if the money was in offset you would be OK as you are not touching the original loan.
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.
Could simon please explain his second sentence, does this mean there is a way to place equity from an IP onto your PPOR and still claim as tax deduction?
Dan
If the funds were paid additional into a loan then redrawing them creates a new loan. The purpose of this loan determines deductibility. If for a PPOR then the answer is no.
If, however the additional funds were in an offset account then the original loan is preserved and the funds can be used as you wish.
This doesn’t help you.
Where it is good is if you are paying down a PPOR and decide to upgrade it by buying a new one and renting the old one.
By drawing the equity for a new home it isn’t deductible.
If, however the old PPOR was IO and extra repayments were made into an offset account then the offset amount may be used freely.
There is no way you can draw the equity (capital growth) from an IP and use it for your PPOR. Unless of course you sell it. You can sell it to a trust or a spouse and borrow 105% to do so.
You will incur stamp duty again so weigh it up carefully.
Hope this helps,
Simon Macks
Mortgage Broker
http://www.mortgagehunter.com.au
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.
*scratches his head*[
]So…… what ‘is’ his best course of action MH ???
REDWING
“Money is a currency, like electricity and it requires momentum to make it Effective”
I would do nothing if it was me. Concentrate on building the portfolio rather than jiggling it around at this stage.
Cheers,
Simon Macks
Mortgage Broker
http://www.mortgagehunter.com.au
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.
NEO
My suggestion depends on the type of accounts your using, and if you prefer to keep the IP.
If your PPOR is say on a LOC or converted to one, then you are only incurring NTDI on the balance. So have the rent paid in here and arrange the cycle so the interest on the IP is paid out about a month later,
Have a C/C tagged to the LOC as well and again live thru the C/C only paying the C/C before the interest free period runs out and of course have your income paid to here as well.
This way you are minimising your NTDI.
Try not to sell your IP.Regards
Rob Brown
CPA/Mortgage Broker
[email protected]Thanks to Simon, everything is clear now.[^]
Us newbies really appreciate all the advise of you experts. Thanks Heaps.[^]
Dan
Guys,
What about where you have made repayments over and above so that you have x amount available to redraw? Can I withdraw and not affect my tax deduction?
Nick
Nick,
It sounds really unfair but the fact is the ATO treat the payments in as paying down the loan and the redraw as a new borrowing event.
This is where an offset makes the difference.
Regards,
Simon Macks
Mortgage Broker
http://www.mortgagehunter.com.au
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.
thanks Simon, much appreciated.
Simon,
If the ATO treats a redraw as a new borrowing event, does that mean that if you redraw from your PPOR to purchase an IP, the interest on the redrawn amount is then tax deductible?
Matt
Matt,
Absolutely!
Cheers,
Simon Macks
Mortgage Broker
http://www.mortgagehunter.com.au
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.
Awesome![^] That’s definitely a bonus I hadn’t counted on. I imagine it’ll cause my accountant a few headaches, but should be worth it. Thanks for the info.
Matt
To make things easier for him get yourself a split in the loan account to clearly show which loan is for the PPOR and which for the IP.
Cheers,
Simon Macks
Mortgage Broker
http://www.mortgagehunter.com.au
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.
Hi guys, need to bring this one back alive for a moment…
I was convinced an offset account on an IO PPOR loan was the way to go for me.
However, please consider this example.
PPOR IO loan 300K with 100% offset.
All income (wages, rental etc) are placed into the offset reducing interest on PPOR. I then redraw funds for living and business expenses as needed. The interest on the PPOR is then payable on the new high figure and is non deductible.Alternatively I could use a LOC agains the PPOR and have all income placed in the LOC. Again redraws will come out for living expenses. HOWEVER, if those redraws from the LOC are for business and/or investment purposes, those would be tax deductible. So the way I see it, with a LOC you can turn your non deductible loan into a deductible one at a great rate of knots!
Firstly, is my thinking correct, and if so, could I please hear some ideas on how I could do a similar thing with an offset account.
thanks guys[biggrin]
HHH
HHH (any relation to the wrestler!!)
I am of the opinion that you may not be able to get IO on a PPOR. (Not 100% on that one though!)
All income (wages, rental etc) are placed into the offset reducing interest on PPOR. I then redraw funds for living and business expenses as needed. The interest on the PPOR is then payable on the new high figure and is non deductible.Correct
Alternatively I could use a LOC agains the PPOR and have all income placed in the LOC. Again redraws will come out for living expenses. HOWEVER, if those redraws from the LOC are for business and/or investment purposes, those would be tax deductible. So the way I see it, with a LOC you can turn your non deductible loan into a deductible one at a great rate of knots!Only the amounts drawn done are tax deductible, not the full amount.
I have an I/O investment loan and a LOC (equity loan). A Classic Plus Account, which is linked to the loan account, as offset. Pretty straightforward….
James
Hi James
Could you please explain more on how you have it setup? I just can’t for the life of me work out if a LOC or an offset would be better. There are pros and cons to both.
I understand only the redraws would be tax deductible, but a deposit on an IP is certainly a large redraw!
How could I achieve the same with an offset account. Redrawing from here is not as good as there is nothing to claim – as it is already your money.
HHH
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