We have a PPOR that we plan to turn into a IP in the next 3-4 months (once other house is renovated). We own $58K on the current PPOR and I plan to set up a Line of Credit loan (Interest Only) and add rates, insurance, maintenance (expense only associated with that IP) etc to the loan to free cash up to pay down the non-tax deductible debt on the renovated house.
In the meantime I may need to do some basic preparation on the current PPOR in the coming months to bring it up to rent standard e.g. painting ($6K). If I set up and add to the LOC now would it matter?
In other words from a ATO perspective they would only see the loan/interest owing from the date we start to rent? If I build up the amount owning now on the soon to become IP slightly would that "contaminate" the LOC if it will be used for future expenses only asociated with the IP?
Thanks in advance.
Get proper advice, but my opinion……..
Tax deductibility depends on the purpose the borrowed funds are used for.
Interest on money borrowed for the property should be deductible if the property is income producing.
So it should follow that if you borrow now to pay rates, do repairs or improvements for that property the interest on these borrowings would probably be deductible when you start renting it (or try to rent it).
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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