Tax break with redraw on new property?

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AC78
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@ac78
Join Date: 2012
Post Count: 10
May 24, 2012 - 2:04 pm
Spoke to accountant today who reassured me that if we redraw on our current PPOR loan to pay deposit for an investment property, the interest is still deductible as it is an expense incurred in gaining income. If we were to redraw on PPOR and then rent it out it would not be tax deductible but as loan for new property it is. What is peoples experience with this type of scenario?
Terryw
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@terryw
Join Date: 2001
Post Count: 16,213
May 24, 2012 - 2:17 pm
yes the interest would be deductible but don't use redraw as every subsequent repayment would also be reducing the investment portion as well. you should set up a separate split. if u dont you wont be maximising deductions.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
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Lawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
AC78
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@ac78
Join Date: 2012
Post Count: 10
May 24, 2012 - 10:57 pm
Thanks Terryw, I am new to all of this, what do you mean by subsequent repayment…..is that if paying off mortgage. We have paid off the house except a nominal $100 which is just keeping the loan open for us in the case we want to redraw.
Dan42
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@dan42
Join Date: 2008
Post Count: 619
May 24, 2012 - 11:24 pm
AC78 wrote:
Spoke to accountant today who reassured me that if we redraw on our current PPOR loan to pay deposit for an investment property, the interest is still deductible as it is an expense incurred in gaining income. If we were to redraw on PPOR and then rent it out it would not be tax deductible but as loan for new property it is. What is peoples experience with this type of scenario?
Your accountant is correct.
The thing to remember with interest deductibility is, it's the PURPOSE of the loan that determines deductibility, not the SECURITY.
Terryw
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@terryw
Join Date: 2001
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May 25, 2012 - 3:53 am
ac i was referring to the draw backs of mixing your loan. but in your case the original loan is virtually paid off so it shouldn,t be a issue
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
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Lawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
AC78
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@ac78
Join Date: 2012
Post Count: 10
May 25, 2012 - 6:05 am
if we attach an offset to the loan is this how it works:
e,g loan in $300K and the rate is 6%
we have $100K in an offset account that has an interest of 4%
on the difference, the $200K we pay 6% and the $100K we pay 4%
In terms of tax deductibility we have been told from our banker that he thinks (but is not sure) the whole $300K is deductible at 6%. is that right?
Terryw
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@terryw
Join Date: 2001
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May 25, 2012 - 6:11 am
not quiet right.
f you have 300k loan and 100k in a 100% offset then u only pay interesr on 200k. the whole of the interesrincurrred would be deductible if a standard investment loan.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email Me
Lawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
AC78
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@ac78
Join Date: 2012
Post Count: 10
May 25, 2012 - 7:50 am
so the interest on the 300K or the 200K would be deductible?
Thanks Terry for your hepo