All Topics / Legal & Accounting / principal residence to investment property?

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  • Profile photo of brenden1985brenden1985
    Participant
    @brenden1985
    Join Date: 2009
    Post Count: 2

    hi, just wondering if anyone could help me with my situation…
    i have a house which i borrowed finance from CBA to purchase as my principal residence, with FHOG.
    I have since moved out of it and am renting it out while i work away.
    As the finance was borrowed as a 'home loan' and not an 'investment loan' does that mean that i cannot claim the interest paid against the rental income??and all associated deductions that go along with it?

    any insight would be of great assistance.cheers.

    Profile photo of TerrywTerryw
    Participant
    @terryw
    Join Date: 2001
    Post Count: 16,190

    Interest deductibility depends on what the borrowed funds are used for. In your case they were used to purchase a property which is now being rented so you should be ok. Original intention doesn't matter in this case.

    Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
    http://structuring.com.au/
    Email Me

    Lawyer, Mortgage Broker and Tax Advisor (Aust wide) http://propertytaxbook.com.au/

    Profile photo of FletcherTaxFletcherTax
    Member
    @fletchertax
    Join Date: 2009
    Post Count: 31

    As per Terry's post – intention can change and the name under which you financed initially whether investment or home doesn't matter.

    Just remember to note the exact dates the property began earning income.

    Also be careful not to dilute the loan (ie. with drawing down for private purposes), as then the interest expense will need to be apportioned.

    Fletcher Tax Accountants
    http://www.fletchertaxaccountants.com.au

    Please note comments made should NOT be taken as specific taxation, financial, legal or investment advice. Please seek professional, specific advice.
    Profile photo of Scott No MatesScott No Mates
    Participant
    @scott-no-mates
    Join Date: 2005
    Post Count: 3,850

    One thing you may need to consider is whether you must advise your lender (or seek mortgagee consent) with regards to leasing the property as you are parting with the possession of the house – if you don't you may be in breach and this may have serious consequences even if you don't skip a repayment.

    Profile photo of TerrywTerryw
    Participant
    @terryw
    Join Date: 2001
    Post Count: 16,190

    Yes, it probably is a breach of the mortgage agreement. Technically you may require the written consent of the lender to lease the property. You cannot do anything without breaching!

    Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
    http://structuring.com.au/
    Email Me

    Lawyer, Mortgage Broker and Tax Advisor (Aust wide) http://propertytaxbook.com.au/

    Profile photo of brenden1985brenden1985
    Participant
    @brenden1985
    Join Date: 2009
    Post Count: 2

    Thanks for all your advice, that should steer me in the right direction.
    Cheers again.

Viewing 6 posts - 1 through 6 (of 6 total)

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