Paying off PPOR good or bad?

Aaron_C said:

I think it's overly pedantic. Imagine trying to pull up someone for that in a Court of law. The judge would laugh at the ATO for being ridiculous. Sure, if you leave it in there for a long time then it loses that nexus between the borrowing and the expense - but not for 1 minute. There is definitely a reasonableness test that applies in these situations.

Click to expand...

I agree in part. But it is best to do things properly to avoid doubt.

If ever money is drawn and placed in a savings account with other money then the loan interest on this amount will not be deductible. There is case law on this. Domjan is the case. Paragraph 42 specifically . From memory.

What if you take out a loan and put the proceeds in a savings account with other savings. Let's say the loan money was in the savings account for a minute and then used to buy a PPOR.

Some time down the track the PPOR is converted to an IP - would the interest then become deductible?

SYD

SYD said:

What if you take out a loan and put the proceeds in a savings account with other savings. Let's say the loan money was in the savings account for a minute and then used to buy a PPOR.

Some time down the track the PPOR is converted to an IP - would the interest then become deductible?

SYD

Click to expand...

No. None of the interest on that loan would be deductible.

Hi Terryw,

Does your view about deductibility change if in the above scenario the loan proceeds were paid into a new account and not mixed with other monies?

SYD

SYD said:

Hi Terryw,

Does your view about deductibility change if in the above scenario the loan proceeds were paid into a new account and not mixed with other monies?

SYD

Click to expand...

it would greatly assist. but i would advise against this. best to do it properly from the start.

I think it is bit of overkill....agree with Aaron_c, if ATO pulls you out for this...you can explain there was no way lender could have allowed you to pay from redraw...hence you had to park it somewhere (it's logical).... parking it to your other personal savings can break the nexus...but parking it to new account to keep things simple...should be alright...

On saying that TerryW is right about the exact rules around nexus on borrowed money....but with that scenario only LOC is the option (as he's advised) to borrow money not redraw....not all investors will borrow money via LOC though

s0805 said:

On saying that TerryW is right about the exact rules around nexus on borrowed money....but with that scenario only LOC is the option (as he's advised) to borrow money not redraw....not all investors will borrow money via LOC though

Click to expand...

Thus my reasons behind why we've been using separate LOC's for Investment & Lifestyle funding for many years. Its a far simpler financial structure.

s0805 said:

....not all investors will borrow money via LOC though

Click to expand...

Each person should be aware of the risks of not being able to claim interest and then just make a decision.