Hi There,
We have a PPOR that will shortly become a IP. We own a relative small amount on it ($58K). I plan to turn this loan to interest only. I also plan to ask the bank to provide say an additional $100K re-draw facility when I re-negotiate the loan.
Question is can I pay for on-going expenses associated with this property such as water rates, council rates, insurance, maintenance etc and draw on the loan's available funds? So over time the interest only loan would grow.
The plan is to use the funds freed to pay down the loan on what will be our new PPOR.
Under these circumstances would the all the interest on this loan be tax deductible?
Would I need to look at a specifc type of loan to facilitate this? Any advice would be appreciated. Thanks in advance.
This is possible if you set it up correctly. You could even possibly borrow to pay the interest too.
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 remind me i can give you the link to a private ruling and a tax ruling on these issues – I've saved the info on my other computer.
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
Hi gcp,
This is a 'textbook' situation where a line of credit facility ( although usually a bit higher interest) is ideal for. Think of it as 'debt recycling''. ie You redo the loan to include (or keep separately as an I/O loan) the balance owing, and then use the LOC facility for all repairs, rates, loan interest (yes!!!) and other expenses that relate to the IP – inc accounting fees, etc – and use the rental income in your 'bank account' as you please. Once you take care of all your non tax deductible debt, then use it to start paying down your LOC.
All the best!
Terryw wrote:If you remind me i can give you the link to a private ruling and a tax ruling on these issues – I've saved the info on my other computer.see TD 2008/27 which basically says capitalised interest retains its character.
http://law.ato.gov.au/atolaw/view.htm?docid=TXD/TD200827/NAT/ATO/00001Private rulings
PBR 78123
PBR 69725
PBR 93707
PBR 93035And, generally, TR 2000/2
Income tax: deductibility of interest on moneys drawn down under line of credit facilities and redraw facilities
http://law.ato.gov.au/atolaw/view.htm?docid=TXR/TR20002/NAT/ATO/00001Terryw | 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
Like V8ghia mentioned above, but it can also be done with a standard loan with an offset (a little savings).
Thanks guys. Rather than a line of credit or a loan with a offset facility. Can I have a simply have a IO loan with additional available funds in redraw and a CBA Streamline account with BPAY facility to be use exclusively for the property expenses such as rates, insurance etc. That way from a paperwork perspective it is auditable. Would this work also?
If you are borrowing money and then mixing it with cash in as savings account, then you will be contaminating the borrowed funds and this will dilute the deductibility of interest. Another potential problem is minimum withdrawals from the redraw and possible fees per redraw
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
Thanks Terry.
Would anyone be familiar with which product the Comm. Bank has that would help me? We are stuck with them for the moment.
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