Hi Everybody,
I have an investment property that I am putting as much spare money into as possible to lower the dept.
It has a redraw facility and I have used it once when I over committed to much into the repayment.During a discussion with a friend it was suggested, me redrawing this money and using it elsewhere other then on the property itself, this could expose me to losing my interest claims at tax time.
I pay IO and my extra repayments are made at the end of the month when my other commitments are honoured.
Regards
JadeHi J
Redraw equals new borrowings. So whether the funds are tax deductible depends on what you've used those funds for.
Best to set this up as IO with an offset account. Instead of placing funds into redraw – you place them into your offset.
Cheers
Jamie
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]
Hi Jade,
Your friend is right. Once you use the loan for non-rental purposes (non income producing purposes) it is no longer 100% deductible. That's assuming the redraw was to cover private, non investment expenses.
But you don't lose your deduciton completely.
Have a look at my article http://www.beyondaccountancy.com.au/?p=414 or the ATO version at http://www.ato.gov.au/content/00113233.htm (second example).
On the other hand, if your re-draw was for rental property related purposes then it is deductible. For example, you can redraw to pay for renovations or other property expenses without losing 100% tax deductibility on the interest.
Google "split loan calculator property" or "LOC calculator" and you'll find free excel sheets that work out the deductible amount for you.
Jarrod
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