100% tax deductabilty - Existing lender taking time to top up existing loan amount

Hi
I need advise to make sure my loan is 100% tax deductable.

I have just signed a contract for my 1st IP and would be topping up my loan with my existing lender of my PPOR to fund 10% deposit on the IP.

Current Loan (PPOR) - $193K
Estimate Cost = $325K


Purchase Price of IP = $320K
10% Deposit = $32K

I have 10 business days to submit 10% deposit but my existing lender has not even started the process of valuation and top up of my loan. I do have have cash to pay for 10% deposit but then if I pay it that way, I think it will not be tax deductable. Original idea is to fund 32K from the top up amount of my existing loan for 100% deductability (32K IO loan with existing lender and 288K IO loan with new lender).

As time is short rather than waiting for top up of 32K to go through, is their any way I can pay 32K now (extra cash in offset of my existing loan) and at the same time request existing lender to top up my loan to make new separate account 32K IO loan. I want to settle new loan and dont want things to fall off due to delay with my existing lender.

If i pay from my pocket how will I justify ATO that top up was to fund IP for deductions. They might ask you already funded IP with your own money and top up was done later on so it was not used directly to fund IP.

So question is what sort of arrangment I can make so that I have 100% tax deductability when my existing lender is taking time to top up my loan (past the 10 days period I have got for paying 10% deposit).

Please advise.
 
What does your accountant say?

You could try and get a deposit bond for the 10% deposit if you wanted to avoid using your own cash, and your accountant was of the opinion you couldnt claim it later...
You could debt recycle and make up the 10% once the property was income producing....
 
Sounds like you'll lose deductibility if you use the cash from your own pocket.

I would try to source/loan the 32k from somewhere else, as a personal loan, probably at a high interest rate. Use the top-up funds to pay-out the personal loan.
 
Thanks guys for your reply. I guess my only solution will be either wait for my existing lender to approve top-up (may be ask for extension to pay 10%) or Deposit Power. I will need to check with my solicitor which will be best option.

Thanks
Aman
 
There is a ruling (TR 2000/2) which allows you to split a "polluted" loan (one with deductible and non deductible elements) to create 2 new loans with the principal split so you can drag the deductible amount out, as long as you can track it. I'd take the deposit out of your existing loan and then get your loan provider to pay the deposit back to the loan once you have secured finance, or at settlement.

Of course there are conditions you need to fulfill and fun calculations to make, so see your accountant.
 
Thanks Mry. Ruling seems to indicate that interest on the borrowing will be deductible if it is incurred for a income producing purpose. I will call ATO and my Tax agent to confirm this. Thanks
 
Thanks Mry. Ruling seems to indicate that interest on the borrowing will be deductible if it is incurred for a income producing purpose. I will call ATO and my Tax agent to confirm this. Thanks

yes so you could place the money from the redraw account into the loan and then redraw it straight out to pay the deposit, if it comes from offset account money likely to be polluted so pay it off loan and then redraw it to make deductible, then you can split the loan when your lender is ready and the $32k can go onto a separate loan and ppor loan goes back as it was.

run by accountant first
 
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