Forums / Getting Technical / Finance / is it tax deductable from PPOR equity?

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  • Profile photo of pcnpcn
    Participant
    @pcn
    Join Date: 2013
    Post Count: 13

    Hi there,

    I have a $30k saving sitting in my offset account to my PPOR home loan. I want to pay down my PPOR home loan so to in crease my equity in my PPOR. Then  I want  access this equity to purchase my IP. Will this $30k tax deductable?

    Thanks,

    Chea

    Profile photo of BigCubezBigCubez
    Participant
    @bigcubez
    Join Date: 2012
    Post Count: 48

    Yes it will be deductible. However once you use it to pay down your PPOR loan, accessing the whole $30K will depend on the LVR on your PPOR.

    Profile photo of Jamie MooreJamie Moore
    Participant
    @jamie-m
    Join Date: 2010
    Post Count: 5,069

    Yep, should be. You'll need to set it up as a separate loan though so you can determine your non tax deductible debt from your tax deductible debt.

    Cheers

    Jamie

    Jamie Moore | Pass Go Home Loans Pty Ltd
    http://www.passgo.com.au
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    Mortgage Broker assisting clients Australia wide Email: [email protected]

    Profile photo of TerrywTerryw
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    @terryw
    Join Date: 2001
    Post Count: 16,173

    The interest on this will only be deductible if:

    1. It is used for investment or business purposes, and

    2. If it is properly transacted – you could lose deductibility if it passes through a savings account or cheque account.

    Terryw | Structuring Lawyers / Loan Structuring Pty Ltd
    http://propertytaxbook.com.au/
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    Lawyer, Mortgage Broker and Tax Advisor (Aust wide) http://propertytaxbook.com.au/

    Profile photo of Paul B.Paul B.
    Member
    @paul-b.
    Join Date: 2013
    Post Count: 70

    I apologise for my ignorance but why wouldn't you just use the money straight from your offset account?

    Profile photo of TerrywTerryw
    Participant
    @terryw
    Join Date: 2001
    Post Count: 16,173
    Paul B. wrote:
    I apologise for my ignorance but why wouldn't you just use the money straight from your offset account?

    Because the interst on the home loan would increase and this would not be deducitble.

    Terryw | Structuring Lawyers / Loan Structuring Pty Ltd
    http://propertytaxbook.com.au/
    Email Me

    Lawyer, Mortgage Broker and Tax Advisor (Aust wide) http://propertytaxbook.com.au/

    Profile photo of Jamie MooreJamie Moore
    Participant
    @jamie-m
    Join Date: 2010
    Post Count: 5,069

    Like Terry said, doing it that way is going to increase your non-tax deductible debt whilst reducing your tax deductible debt. Not a good outcome.

    Think of it this way.

    You have a $100k owner occupied loan.

    You have $30k sitting in the offset account.

    So you're paying interest on $70k.

    If you took that cash out to fund an IP, you'll start paying interest on $100k.

    However, if you restructured the loans and created a $70k loan split (owner occupied debt) and a $30k loan split (the equity release for IP purposes) you'd have a $70k non-deductible debt and a $30k deductible debt.

    A better outcome.

    Cheers

    Jamie

    Jamie Moore | Pass Go Home Loans Pty Ltd
    http://www.passgo.com.au
    Email Me | Phone Me

    Mortgage Broker assisting clients Australia wide Email: [email protected]

    Profile photo of Richard TaylorRichard Taylor
    Participant
    @qlds007
    Join Date: 2003
    Post Count: 12,010

    Paul case of use it and lose it.

    Structured correctly you can have your cake and eat it.

    Cheers

    Yours in Finance

    Richard Taylor | Mortgage Broker helping investors build their wealth thru property
    http://www.mortgagecapitalaustralia.com.au
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    0-40 Properties in a decade with a unencumbered portfolio value in excess of $40M. Ask me for a copy of my API Interview.

    Profile photo of pcnpcn
    Participant
    @pcn
    Join Date: 2013
    Post Count: 13

    Thank you all for your comment. It's very helpful.

    Regards,

    Chea

    Profile photo of Paul B.Paul B.
    Member
    @paul-b.
    Join Date: 2013
    Post Count: 70

    This structuring of finance stuff is addictive! Thanks for the help.

    Profile photo of Richard TaylorRichard Taylor
    Participant
    @qlds007
    Join Date: 2003
    Post Count: 12,010

    So true Paul and it is where most clients come unstuck.

    Had a forum member from Sydney ring me yesterday who had sold her IP and her Bank had told her to pay back the net sale proceeds straight into her PPOR loan.

    They told her when she needed the funds on the next IP just go ahead and redraw it………

    On a $300K redraw that has just lost you the best part of $18K interest deduction per annum.

    No point in going back to your Banker when the Accountant / ATO break the news to you as they will have moved onto to another Branch or shifted Departments.

    Cheers

    Yours in Finance 

    Richard Taylor | Mortgage Broker helping investors build their wealth thru property
    http://www.mortgagecapitalaustralia.com.au
    Email Me | Phone Me

    0-40 Properties in a decade with a unencumbered portfolio value in excess of $40M. Ask me for a copy of my API Interview.

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