Is this a new PPOR ruling??????

B

btc

Hi,

I m getting confused but excited with the news (if its possible).

A bit of back ground, my PPOR loan is fully paid/closed off. And we are now thinking of upgrading to a better home, but am hoping to rent out the current PPOR-1. But that means the new PPOR-2 will have a huge loan and the interest is not tax deductible.

However, I read in one of the posts yesterday and confirmed with my accountant that I can take out a new HL (80%=400k) against PPOR-1 and put in a 100% offset while I m still living in it.
And say in 2 months time, we see a property that we like, we can use the money in the offset account to purchase PPOR-2 and rent out PPOR-1, then the interest accrued on the 80% = 400k will be tax deductible!!!!!!!!!!!!!!!!!!!!

I thought the basis is that if the money is used for personal used, it doesn’t matter when the money/loan was taken out, it cannot be tax deductible.

So can someone confirm the above method is legit, if so I m going to make an appointment with the back this arvo :D

Thanks for your advise in advance.

PS. For all your good intentions, but pls stick to the question, I know there might be better alternatives like selling the property, sell to partner or trust etc etc. but just want to know if this info provided is correct :cool:
 
If the loan is taken out to purchase an Investment property then it is tax deductible, the mortgage is just secured by the PPOR. In the case you suggest, perhaps the timing is the issue - you dont do any investing with the money for a while. You would be best doing this in the one transaction - ie buy an IP and take out a loan to do that. Than again I am not an accountant but your timing just doesnt seem right!
 
btc said:
the interest accrued on the 80% = 400k will be tax deductible!!!!!!!!!!!!!!!!!!!!

I thought the basis is that if the money is used for personal used, it doesn’t matter when the money/loan was taken out, it cannot be tax deductible.
Click to expand...
I agree with the latter. The purpose of the loan, taken out now, is NOT to buy the PPOR-1; it's a refinance, and the ultimate purpose of the funds it to buy PPOR-2. Therefore I believe either your accountant misunderstood your question, or is in error. I'm discounting the possibility that there's a brand new tax law - but I'd be delighted to be wrong.
 
Strictly speaking I agree with ozprop and your accountant has misunderstood the question.

I believe it comes down to the intent of the loan as well as the use of the funds. If your intention all along is to live in the property, you might be in trouble.

I'd go back to the accountant to clarify this further.

You might get away with it if you set up the loan, rent the property as an investment for 5 to 10 years then move in. Does anyone know how long the ATO's memory really is? :)
 
I think you can do what you want, but the situation needs to be slightly different.

Assuming that your property is in both names, you could transfer it to your partner, as an act of love and devotion (only works in Vic). Then your partner would need to buy out your half, which means they would need to re-finance.

Once this has been done, you'd still need to be living in the property. You could then move out and convert it to an IP. However you'd probably want to live in the property for a minimum of 12 months, but preferably a few years.

However you will probably need to pay stamp duty on this transaction and you should seek taxation and legal advice before proceeding.
 
I too, am of the same understanding as Ozperp. Its the 'purpose or intent' of the 'drawings' that determines whether its deductible or not - yes for income producing purposes & no for private purposes.
 
OK - this is interesting.

Lets look at 3 examples......

One
I buy a PPOR, I get a mortgage, the intent of the funds are to purchase a PPOR, a non income producing asset. If I move out of this property and convert it into an IP, can I claim the interest as a tax deduction.......From what I have read and advice I have sought, the answer is yes.

Two
I can draw down equity in IP's and pay down PPOR debt, but the interest on this would not be deductible, again illustrating it's the purpose of the funds, not the underlying security that determines deductibility.

Three
I purchase a PPOR in joint names, I realise I've paid off principle that is effectively lost money, so I transfer property to my name, pay stamps and associated transfer costs and re-finance to purchase my partners half. I then move out of this property and convert it to an IP. Slightly different, but not much different than example one.

Are one and three doable, or is only one possible?

confused :confused:
 
Clarifying my first post - you are drawing down a loan to purchase a PPOR, not an IP. The fact that you put it into an offset loan for a while is irrelevant. The purpose of a loan has to be for investment; yours isn't.
 
This topic is quite a confusing one.

I work at an Accounting Firm (PKF Chartered Accountants) and asked my manager and partner a question based on the same scenario.

Basically I have a family friend who has paid off their PPOR (current valuation would be $300K)

He is also buying into a House and Land package costing him $550K and the completion of building will be around another year from now. So basically this will be his new PPOR in one year.

The manager said it would be best to get a LOC now from his current PPOR of $240K (80% of valuation) and then use it to pay the loan from the new H&L Package. The Partner and himself believe that while he is living in his current PPOR, he can take out the fund and use it for whatever reason and once he moves out and converts it into an IP, the debt will be tax deductible.

Now this advice is different from the one given on this forum, so which one is correct?
 
kaiseriqbal said:
The manager said it would be best to get a LOC now from his current PPOR of $240K (80% of valuation) and then use it to pay the loan from the new H&L Package. The Partner and himself believe that while he is living in his current PPOR, he can take out the fund and use it for whatever reason and once he moves out and converts it into an IP, the debt will be tax deductible.

Now this advice is different from the one given on this forum, so which one is correct?
Click to expand...
I would ask your manager how the purpose of the $240K qualifies as being for investment. I'm not an accountant, but willing to bet that he's wrong on this one.
 
kaiseriqbal said:
This topic is quite a confusing one.

I work at an Accounting Firm (PKF Chartered Accountants) and asked my manager and partner a question based on the same scenario.

Basically I have a family friend who has paid off their PPOR

The manager said it would be best to get a LOC now from his current PPOR of $240K (80% of valuation) and then use it to pay the loan from the new H&L Package. The Partner and himself believe that while he is living in his current PPOR, he can take out the fund and use it for whatever reason and once he moves out and converts it into an IP, the debt will be tax deductible.
Click to expand...

It isnt that confusing to be honest. Unless you plan to use that $240K to fund the purchasing of an additional investment, like property, and which therefore means you are using the current PPOR as the security for that loan, then you simply cannot 'use it for whatever reason'. If the PPOR still had an existing mortgage, that was used to purchase it initially, then those interest payments are tax deductible when it becomes an IP.
 
Pushka said:
Clarifying my first post - you are drawing down a loan to purchase a PPOR, not an IP. The fact that you put it into an offset loan for a while is irrelevant. The purpose of a loan has to be for investment; yours isn't.
Click to expand...
I agree, if you claim the interest in your tax return and you get audited you're gone....
How long is the ATO memory?
I think it's for as long as you hold the asset
 
so there's a difference between feeling dishonest and actually being dishonest.. good pick up. again comes down to one's perception.
Click to expand...


No again.


That one is solely determined by the ATO auditor's working under the Tax Act. They will dis-allow the claim, unless and until you the taxpayer can prove to their satisfaction and the Act stipulations they work under and are authorised by.


Of course, the taxpayer can dispute their usually reasonable burden of proof if their perception is different, and then it goes to court where a judge will determine the outcome based on the facts of the case and the letter of the law, whether or not to allow the claim made.


Again, just like last time, at no time whatsoever, is the matter ever determined by the taxpayer's perception.


"Perception" is a nice fluffy mindset word. It is rarely, if ever, listed in any Act of Parliament. Indeed, I have never seen the written word in all of my readings. The people writing the Acts go to great lengths to ensure that citizens perceptions never come into it. The matters are far too important to be left floundering by the fluffiness of "perception".
 
thanks for your help.

if anyone could point me to the legislation or relevant ato case, it would be helpful in that id be able to show the manager and partner that they were wrong and so that they dont have any problems in the future with the ato or clients
 
kaiseriqbal said:
thanks for your help.

if anyone could point me to the legislation or relevant ato case, it would be helpful in that id be able to show the manager and partner that they were wrong and so that they dont have any problems in the future with the ato or clients
Click to expand...

FCT v Munro

Full High Court, 1926

It usually forms part of an introductory course on Taxation Law.

It exposes the fundamental flaw in looking at the security for the borrowing rather than the purpose of the loan.

Cheers,

Rob
 
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