Hi all
I redrew (in Feb) this year money from one I&P loan to place against another I&P loan I have and both properties are currently rented out. I will have, in October, enough to pay off the later loan completely. I am also planning on moving back into this property in January next year (with no mortgage).Can anyone see any tax implications with this?
Yes there could be tax issues.
Sounds like you have refinanced part of one loan with part of another. Mixed loans will become mixed purpose loans once you move into 1 of them so there will be tax issues.
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
can you give me an idea on what kind of issues?Only a portion of the interest may possibily be deductible.
Can u give a description with amounts of what happened/?
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
i withdrew $58,000 from the loan taking it from $150,000 up to $208,000 and placed that into the redraw of the house that is still under the 6yr rule hence my idea of moving back in to keep that. i eventually intend to rent it out again.how much is the loan on the house you want to move into?
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 now have $94,000 left to pay (due to the $58,000) and have $80,000 in the offset which by October will reach the amount so I can pay it off completely.
is that a wise move now?
Property A = Investment
Property B = Future PPORProperty A has 2 loans against it.
Loan 1 = $150,000
Loan 2 – $58,000Assuming loan 1 is associated with the purchase of the property the interest on this loan will probably be deductible.
But loan 2 was borrowed to pay into PPOR. So the interest on this loan is not deductible – actually it may be now that the house is rented but won't be once you move in.
Since this is on big loan you would need to apportion the interest.
Total loan is $208,000 so
Loan 1 = 150,000/208,000 = 73%
Loan 2 = 58,000/208,000 = 27%So assuming this is an interest only loan only 73% of the interest will be deductible once you move into property B.
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 so much for explaining that terry
so does this apply only for the year it happened? i redrew the money in january 2012 and both properties were rented. i don't intend to move in till january 2013 so that is a new financial year. will it be less 27% for the 7mths of this financial year?No it applies for the life of the loan.
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
so it is best to keep Property B as a rental property then? Another idea is if i moved in for a few months to gain the CGT exemption then out again, does the interest on Property A become deductible again?should i pay off the loan?
That is a question that only you can answer. There are not just tax issues but lifestyle etc.
If property B was rented then loan 2 would be deductible too because it relates to this property. If you move in and out again you may still be able to claim the main residence CGT exemption.
I think it is best to not pay off loans. Imagine if you paid off the loan and then moved out again buying a new PPOR. You would have no or little deductions on that property while having a high nondeductible loan on the new PPOR.
Try an IO loan with a 100% offset to keep your cash in. You could end up paying no interest while you are living and then then when you move out move your money from the offset or keep it there depending on your situation.
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 for all your advice, Terry. you have been a great help and i have a lot to think about. the only reason i would move back in is to gain the exemption, not a lifestyle choice. also the info on the IO is very interesting.
and sorry for asking again (i don't fully understand), but from what you say below…..
'If property B was rented then loan 2 would be deductible too because it relates to this property. If you move in and out again you may still be able to claim the main residence CGT exemption'…is it true that i can move into Property B for a few months (to gain the CGT exemption) and then out again returning it to be an investment and the interest on Property A becomes deductible again?
learning curve2 wrote:…is it true that i can move into Property B for a few months (to gain the CGT exemption) and then out again returning it to be an investment and the interest on Property A becomes deductible again?No.
Whether you move into B again is irrelevant to claiming the interest on A.
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
but previously you said that….So assuming this is an interest only loan only 73% of the interest will be deductible once you move into property B.
i am confused
73% of the combined loan as this relates to property A. The other 37% relates to property B.
So if you move into property B then only 73% of loan 1 would be deductible and this would be against property A.
Since you would be living in property B, the PPOR, none of loan 2, the 37% part, would be deductible.But if you moved out and rented both then the whole loan would be deductible with 27% being attributed to property B.
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
oh i get it…..
so, i can move in to Property B for a few months (to gain the CGT exemption) and then out again returning it to be an investment and the interest would be deductible again, but not against Property A but against Property B.
Yes, probably correct (without knowing all your details).
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 again, terry. i will of course investigate further but you have given me a great base to build upon
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