I purchased my PPR in 2010 and didnt open up an offset account. I proceeded to pay excess money into the account not knowing there was a difference between redraw and offset. In 2011, I then brought an IP and used money from the redraw facility to pay for the deposit, stamp duty ect. I now read that this redrawing has changed the purpose of the loan. This is a problem for me as it was my intention to move out of the PPR into the IP and claim the interest on the loan as deductions.
So my question is can I again change the purpose of the loan by selling 50% of it to my wife? Or can I never move into the IP and just keep it as an investment?
The purpose of the money that you drew from your loan has been used for investment purposes. This is generally deductible however is messy as you have to keep track of the amount borrowed on redraw and to apportion your repayments between the IP loan and the PPOR loan. This will become cleaner once the PPOR becomes an IP.
It's not ideal.
When you move into the IP – technically you won't be able to claim the entire debt against your new IP (previous PPOR) because a portion of the loan was redrawn to fund the deposit/costs on the new PPOR.
Best to seek advice from an accountant – they might be able to apportion debt so you can still claim something.
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]
mthommo82 wrote:I purchased my PPR in 2010 and didnt open up an offset account. I proceeded to pay excess money into the account not knowing there was a difference between redraw and offset. In 2011, I then brought an IP and used money from the redraw facility to pay for the deposit, stamp duty ect. I now read that this redrawing has changed the purpose of the loan. This is a problem for me as it was my intention to move out of the PPR into the IP and claim the interest on the loan as deductions. So my question is can I again change the purpose of the loan by selling 50% of it to my wife? Or can I never move into the IP and just keep it as an investment?Slow down there!
There are a few issues here.
Firstly you could sell your half to your wife – but many complicated and costly issues.
But things might not be that bad.
At the moment you have created a mixed loan – most probably non deductible as it related to the purchase of the house which is owner occupied. This interest may be deductible once you move out and rent it.
The other part was money borrowed for the new IP so this portion should be deductible.
But the problem is you are probably paying PI and it is a mixed loan so that would make it hard to apportion.
I would advise you to immediately convert the loan to IO and maybe even consider splitting into 2 – the redrawn portion used for the investment and the rest. Have the offset account set up on the non deductible portion and problem almost solved.
Then when you move out asses whether you would be better off selling it to your wife.
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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