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  • Profile photo of YetYet
    Participant
    @yetend
    Join Date: 2016
    Post Count: 9

    Hi there. Will appreciate any help & suggestions.
    I’m in a process of building a granny flat on my IP. As its hard to get finance for owner builder, I’m using equity from my PPOR as a split investment loan of $120,000, which is been pre-approved. As I’m managing the project, i may not use the whole $amount.
    1. What should I do with leftover $, can I reduce my PPOR loan?
    2. How can I prove taxation that I have used the money for investment/granny flat, assuming investment loan is tax deductible?
    3. Do I have to keep any records/evidence for Capital gains purpose?

    Is there any other things I have to consider?

    Thanks in advance
    Yet

    Profile photo of BennyBenny
    Moderator
    @benny
    Join Date: 2002
    Post Count: 1,416

    Hi Yet,

    Re 1. – my first reaction would be to say DO NOT mix the purposes of the loans (i.e. don’t use some of the loan to buy/build a Tax Deductable granny flat, and then use the other half to pay off personal debt – keep investment and personal loans TOTALLY separate).

    Re 2 and 3 – talk this through with your accountant. Keep all receipts, etc along with emails or correspondence with lenders, etc.

    Talk with them re an Offset Account if you don’t already have one. You can get some idea of an Offset’s benefits here:-
    https://www.propertyinvesting.com/topic/4410491-the-big-picture-for-new-readers-especially/#post-4697973

    Benny

    Profile photo of YetYet
    Participant
    @yetend
    Join Date: 2016
    Post Count: 9

    Thanks Benny. Thanks for the hints, I’m just worried I may not be able to provide evidence/invoice for 40% of the project/work as it will be done by myself and my builder friends via cash in hand.
    I’m in a process of negotiating a offset attached to split loan – the one I got know is with PPOR loan, also I will make sure bank don’t deposit money in PPOR offset as it will be mixed.

    Thanks again. I’m learning a lot through this forum.

    Yet

    Profile photo of BennyBenny
    Moderator
    @benny
    Join Date: 2002
    Post Count: 1,416

    Hi again,

    I’m just worried I may not be able to provide evidence/invoice for 40% of the project/work as it will be done by myself and my builder friends via cash in hand.

    I wouldn’t be too concerned over that – I am fairly sure a Quantity Surveyor might be able to come up with values that would be suitable for the ATO.

    Note that I am “fairly sure” – I am hoping others who KNOW might step in to put me right if wrong, or to agree if I did get it right. ;)

    Benny

    PS Not sure I like the sound of this:-

    I’m in a process of negotiating a offset attached to split loan

    Why would you want an Offset on a SPLIT loan? It sounds like it IS MIXING two loans together !! If it doesn’t mean this, please do explain – it doesn’t sound good to me…..

    • This reply was modified 7 years, 3 months ago by Profile photo of Benny Benny.
    Profile photo of YetYet
    Participant
    @yetend
    Join Date: 2016
    Post Count: 9

    Hi Benny,
    My understanding is not to park the investment money in PPOR offset account where it will be mixed with personal cash. As I need to park somewhere, isn’t it a good idea to have another offset attached to split loan. I think this helps with interest on the loan as I will only withdraw when needed for building just like LOC.
    Please correct me if I’m wrong.

    Thanks
    Yet.

    Profile photo of BennyBenny
    Moderator
    @benny
    Join Date: 2002
    Post Count: 1,416

    I guess I need you to describe to me what you think of as a “split loan”. That is the term I have concerns with, not so much the Offset Account per se.

    Describe your “Split Loan” to me and let’s see what comes up then….

    By the way, there are even right and wrong ways to spend money from an Offset, so do check back re that bit too. I think I can point you to a link – but first, let’s put that split Loan to bed eh? ;)

    Profile photo of YetYet
    Participant
    @yetend
    Join Date: 2016
    Post Count: 9

    OK. Maybe I’m confusing things. Please let me explain. I have one IP with no offset attached & also no equity to access for building granny flat/or second IP purchase. I do have PPOR with offset attached and enough equity to access for building granny flat. So I’m applying for a second loan/equity release of $120,000 using PPOR as security – this is what I called split loan.

    Thanks
    Yet

    Profile photo of TerrywTerryw
    Participant
    @terryw
    Join Date: 2001
    Post Count: 16,213

    Beware – lots of confusing comments in this section.

    1. Don’t draw it down. If you borrow to pay off the main residence loan the interest won’t be deductible and your $120k split will be a mixed purpose loan.

    2. With extreme care. If you pay for something with cash and then take money from the loan the interest will not be deductible because you have just borrowed to reimburse yourself. Mixed loan issues too,

    You need to pay the vendor directly from your loan account – which may be difficult.
    An alternative is to use a credit card to borrow to pay for the items and then refinance this loan with the bank loan. You must not have any other private expenses on the card when doing this – or the card will be a mixed purpose loan.

    3. Bloody oath. Have you sought tax advice? Property first used to produce income could reset the cost base to market value at the date it first earns income.

    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

    Profile photo of YetYet
    Participant
    @yetend
    Join Date: 2016
    Post Count: 9

    Thanks Terry. Appreciate your tips.

    Cheers
    Yet

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