Deductability of loans - any advice?

[TheBacon]

Hi ya,

I am considering buying a new ppor, which would mean selling my current one. Easy enough so far.

I have 2 LOC's and the initial mortgage outstanding against the ppor.

Sale of house would require discharging of loan and LOC's. OK.

One of the LOC's is primarily drawn to help purchase an IP. Instead of discharging the second LOC with proceeds of sale, can I discharge it by using an LOC set up against the IP?

As we currently sit, because the second LOC is drawn for an IP the interest is fully deductable. If I were to pay it out using the IP LOC, does the interest on this amount remain deductable?

Cheers

TB

 

[BayView]

It sounds as though you are wanting to use a loan from the IP to pay out the loan on the PPoR?

The ATO looks at the purpose of the loan, so even though you are using the IP as the security for the loan, it would not be tax deductible as the purpose of it is for your PPoR.

 

[JamesGG]

It sounds as though you are wanting to use a loan from the IP to pay out the loan on the PPoR?

The ATO looks at the purpose of the loan, so even though you are using the IP as the security for the loan, it would not be tax deductible as the purpose of it is for your PPoR.

Hiya,

It looks to me as though the loan to be paid out by the new IP LOC, relates to the IP and is simpy only secured by the PPOR.

So, replacing one loan with another will enable the continuity, and the interest on the new LOC should be deductible. However, one word does raise an eyebrow:

One of the LOC's is primarily drawn to help purchase an IP.

(Emphasis added)

If that loan has a mixed purpose, then so will the new LOC drawn to pay the old one. So, be careful with that.

Cheers

James.


PS - Just as an afterthought, have you considered keeping your old PPOR as an IP?

 

[TheBacon]

Hiya,

It looks to me as though the loan to be paid out by the new IP LOC, relates to the IP and is simpy only secured by the PPOR.

Yes, thats right.

So, replacing one loan with another will enable the continuity, and the interest on the new LOC should be deductible. However, one word does raise an eyebrow:

Thats what I was hoping, great!

If that loan has a mixed purpose, then so will the new LOC drawn to pay the old one. So, be careful with that.
Cheers
James.

I can show exactly how much of the LOC drawdown is from the IP. I was indending to use the IP-LOC to clear this portion only. How does that sound?

PS - Just as an afterthought, have you considered keeping your old PPOR as an IP?

Yeah I have, but the houses we are looking at cost around $600k and I cant see how I can service that entirely on my own wage (even though I'm paid well). The current PPOR would most likely be CF neutral, would be easy enough. If not, it would be close and I am comfortable with the risk of capitalising the small cost differential. But, even interest only payments on $600k would be at least $40k per year, a very significant portion of my take home pay...