Hi All,
I have a question regarding treatment of refinancing the deposit for an IP.
I intend to extract equity from my PPOR and to utilize it to pay deposit towards an IP. My understanding is that when I refinance, I will get money which will go in my personal savings bank account and which I’ll pay for the deposit within a few weeks. Will the interest on deposit loan remain tax-deductible this way? Because ATO may deem it to be used for personal use.
I’m sure you guys have been through this a number of times. How do you guys transact so the interest on deposit remains tax-deductible?
LTF
If you deposit money from a loan into a savings account it is no longer borrowed money, so you may not be able to claim the interest at all. Also sounds like you are just increasing a loan which can be dangerous if you are mixing a home loan with an investment.
For this reason I would suggest a LOC.
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
Or just set it-up as a second IO split on the variable product. If it's set-up as a second facility you'll be able to easliy identify the deductable debt from the non-deductable.
Jamie Moore | Pass Go Home Loans Pty Ltd
http://www.passgo.com.au
Email Me | Phone MeMortgage Broker assisting clients Australia wide Email: [email protected]
Terryw wrote:If you deposit money from a loan into a savings account it is no longer borrowed money, so you may not be able to claim the interest at all. Also sounds like you are just increasing a loan which can be dangerous if you are mixing a home loan with an investment.For this reason I would suggest a LOC.
Thanks for your reply Terry. I’ve never used an LOC. Is the LOC set up when the loan is taken? And it usually has higher interest? I need to find out out more about LOC.
Jamie M wrote:Or just set it-up as a second IO split on the variable product. If it's set-up as a second facility you'll be able to easliy identify the deductable debt from the non-deductable.Thanks Jamie. Yeah, I found out from my bank and I am actually able to set up a separate account for the new IP mortgage. Cheers.
Jamie M wrote:Or just set it-up as a second IO split on the variable product. If it's set-up as a second facility you'll be able to easliy identify the deductable debt from the non-deductable.Hi, currently going through the same process as well and for the lower interest rate I am leaning to this option over a LOC. Question though, where does the money sit while I am searching for my property (funds not used), if in a plain savings account then I am paying interest on the loan without actually using the funds yet, my thoughts to overcome this is to set up an offset account for this split and so not paying interest until the time comes that I need to use the funds for deposit. Some have suggested this may still have some problems with compliance from ATO, any further thoughts on this?
TLP
tlp wrote:Jamie M wrote:Or just set it-up as a second IO split on the variable product. If it's set-up as a second facility you'll be able to easliy identify the deductable debt from the non-deductable.Hi, currently going through the same process as well and for the lower interest rate I am leaning to this option over a LOC. Question though, where does the money sit while I am searching for my property (funds not used), if in a plain savings account then I am paying interest on the loan without actually using the funds yet, my thoughts to overcome this is to set up an offset account for this split and so not paying interest until the time comes that I need to use the funds for deposit. Some have suggested this may still have some problems with compliance from ATO, any further thoughts on this?
TLP
My view is that the funds are no longer borrowed once they are in the offset account. Therefore is is a potentially dangerous way to do things. I would rather see the funds put back into the loan and then reborrowed when needed.
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 Terry,
Please confirm if I have interpreted correctly:
1. Take out loan (split)
2. Funds are disburst into an account (savings)
3. Pay funds back into the loan
4. Use redraw when I need the fundsNow I thought redraw would be subject to similar treatment?
Regards,
TLPYou could do that or just put the funds back into the loan without them being deposited into savings/
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
I asked that question of the bank, its not an option, when you take out the loan it is disburst into an account, it cannot be disburst back into the loan, so the branch manager told me. Let me know if they are wrong but we had a very specific discussion on this matter.
cheers
TLPtell them you want a cheque – then deposit it in the account.
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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