Hi all
This is my first post, and I need some advice from more experienced people please. I have been living in property one for the last 8 years. I have always paid $200-$300 extra on the mortgage every week. Therefore I accumulated an extra $50 000 in the redraw account. I also received an inheritance and put that $50 000 in the redraw account as well. The balance of the loan was down to about $4000. My intention was to buy another apartment, and I was simply using the redraw account as a savings account with this in mind. This seemed to be the best way to go, as the rate in a savings account was a couple of percentage points lower than the rate I effectively received in the redraw account.
I have now purchased property two. I have used the $100 000 accumulated in property one's redraw account as my deposit on property two. I now wish to turn property one into an investment property ( $400 000 property with a mortgage of $104 000) and move in to property two.
Am I able to claim the interest payments on the mortgage of $104 000 on property one, or will the tax department see that as fraudulent? I was merely using my redraw as a savings account, but will they view it as – nearly had the mortgage paid off and then suddenly back up again to $104 000? If this is the case I think they will only let me claim the interest on the $4000 that was the balance before I emptied the redraw account.
Is anyone able to advise me either way. I am cutting it quite fine financially, am may have to sell propety one if I can claim the interest rates on the entire mortgage balance.
Cheers and look forward to hearing from any experienced investors or accountants out there.
Hi Niccy,
It is the "purpose of the loan" that is important. Your words seem to say that you have purchased Prop #2 as a place to live. In that case, I would tend to agree that you wouldn't be able to claim the loan as for investment purposes.
But do you HAVE TO move into Prop #2?
If you can stay where you are, then $100k of the $104k should be deductible – BUT you have an account with "mixed" personal and investment monies. I'd suggest getting that put right. Talk to your accountant, or one of the advisers on here.
Benny
Thanks for responding Benny. I wish to move in to property 2 and turn property one into an investment property. Would you mind advising me how to get into contact with an advisor on this forum please?
Hi Niccy,
It is quite likely that some of them will be dropping by this thread of yours later on….
Check out their signatures telling you their professions. They will likely also be providing you with a direction in their replies. Keep watch….
Benny
Hi Niccy
It looks like you'll only be able to claim $4k in deductions. The $100k you've redrawn has been used to purchase a property to live in – therefore, it wouldn't be deductible.
I'm not an accountant though – just a number crunching finance nerd.
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 Benny
Just went to the library and also rang the tax department. It appears that because I parked my savings in the redraw account, I will only be able to claim interest on the balance that was left after deducting the money in the redraw account i.e about $4000. it looks for all intents and purposes like I had almost paid off the mortgage and then I withdrew all of the money. If it had been an offset account as opposed to a redraw account, I would have been able to deduct interest payments on the entire loan amount.
Am really disappointed that I was not well informed before I put my savings into the redraw account. I thought I was being clever parking the money there whilst I looked for a new property to move into. Silly me!!
If any experts out there have contradictory advice I would embrace it with open arms.
Thanks for your interest.
Niccy
niccy3768 wrote:Am really disappointed that I was not well informed before I put my savings into the redraw account. I thought I was being clever parking the money there whilst I looked for a new property to move into. Silly me!!
Yeah it's a pain but these things happen.
If the money was placed in an offset account it wouldn't have been a problem because they're treated different to redraw.
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]
niccy3768 wrote:Hi allThis is my first post, and I need some advice from more experienced people please. I have been living in property one for the last 8 years. I have always paid $200-$300 extra on the mortgage every week. Therefore I accumulated an extra $50 000 in the redraw account. I also received an inheritance and put that $50 000 in the redraw account as well. The balance of the loan was down to about $4000. My intention was to buy another apartment, and I was simply using the redraw account as a savings account with this in mind. This seemed to be the best way to go, as the rate in a savings account was a couple of percentage points lower than the rate I effectively received in the redraw account.
I have now purchased property two. I have used the $100 000 accumulated in property one's redraw account as my deposit on property two. I now wish to turn property one into an investment property ( $400 000 property with a mortgage of $104 000) and move in to property two.
Am I able to claim the interest payments on the mortgage of $104 000 on property one, or will the tax department see that as fraudulent? I was merely using my redraw as a savings account, but will they view it as – nearly had the mortgage paid off and then suddenly back up again to $104 000? If this is the case I think they will only let me claim the interest on the $4000 that was the balance before I emptied the redraw account.
Is anyone able to advise me either way. I am cutting it quite fine financially, am may have to sell propety one if I can claim the interest rates on the entire mortgage balance.
Cheers and look forward to hearing from any experienced investors or accountants out there.
You will only be able to claimi interest on the $4000 loan as the rest of the $100,000 was borrowed to purchase a property to live in.
This means you could only claim about $200 per year in interest and is a costly mistake.
If you had sought tax advice you could have structured things differently and been able to claim an extra $5000 or more per annum.
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
Thanks for your comments. Do you think there is any way this situation is salvageable? I am trying to decide whether to sell/rent property one at the moment. Is it too late to structure things differently? I am not settling on property two until the 1/5 and am at a loss as to how to proceed to my benefit.
Thanks for your time.
Niccy
Thanks Jamie for your comments. I appreciate sharing of your knowledge.
niccy3768 wrote:Hi TerryThanks for your comments. Do you think there is any way this situation is salvageable? I am trying to decide whether to sell/rent property one at the moment. Is it too late to structure things differently? I am not settling on property two until the 1/5 and am at a loss as to how to proceed to my benefit.
Thanks for your time.
Niccy
Totally too late I am afraid. You have repaid a loan so withdrawing money is considered new borrowings and the interest deductibillity will depend on what the funds are used for.
You might want to consider selling and then restructuring. Perhaps even selling to a spouse who would borrow to buy. Just do the sums and see what the costs are and how long to recoup.
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. Guess the decision whether to rent/sell has been made for me! I appreciate your time thank you.
Niccy i am assuming you own the property solely ?
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
Hi Richard. Yes I am the sole owner.
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