Can I do this?

[s050399b]

for example, I have a PPOR Home Loan which have $30k surplus in the redraw facility; it has a $200k loan limit - so I am owning the bank $170k.

I am thinking of renting out this PPOR.

Am I able to:
- withdraw this $30k and put it in my offset account
- hence owning $200k to the bank
- rent this PPOR out
- and claim the interest of $200k as tax deductible?

 

[The Y-man]

Where are you putting the $30k???

The Y-man

 

[s050399b]

repharse.......in point form~

1) PPOR Loan Account ($30k available for redraw)
2) PPOR Loan Limit = $200k
3a) withdraw $30k (which is available for redraw) from PPOR Home Loan
3b) and put it somewhere else? or spend it on a car?
3c) hence own bank $200k
4) rent this PPOR out
5) claim the interest of $200k as tax deductible?

I hope this makes it clearer

 

[jaycee]

I think it will depend on what you do with the $30k..... i foyu use it ofr non business / investment purposes, I think the answer will be no the $30k will not be deductable.

 

[Perp]

You can only claim interest on the $30K if that $30K is used for investment purposes. Redrawing the loan on the property to $200K, and then making that property an IP, does not make the entire $200K deductible, no.

If you use that $30K as a deposit on another IP, or to buy shares, then the interest would be deductible on that basis.

If you use the $30K for a new car or to pay down private debt or a holiday etc, then no, it's not deductible (only the interest on $170K).

This is why everybody advocates having I/O loans and, rather than paying down principal, depositing any principal component into an offset. If you had $30K sitting in an offset account, you could withdraw it and use it for any purpose you like, and the interest would remain deductible, but not so if you redraw.

 

[s050399b]

did you missed point (4) and (5)?......
I've rented the whole PPOR out......

 

[The Y-man]

did you missed point (4) and (5)?......
I've rented the whole PPOR out......

It doesn't matter what happens to the property - tax is based on what is done with the money.

This is why when people who have paid their PPOR off want to rent it out, and redraw the lot to buy their new home run into the "you can't claim any of it" wall. You're "lucky" in that you still have interest on the $170k you can claim.

When you draw the $30k down, the tax office doesn't care WHERE the money comes from - it could be your IP, PPOR, uncle, parents, mate, whatever. It does care about WHAT the money is used for for determining it's deductibility.


The Y-man

 

[s050399b]

You can only claim interest on the $30K if that $30K is used for investment purposes. Redrawing the loan on the property to $200K, and then making that property an IP, does not make the entire $200K deductible, no.

Okay, so I can say that:
a) if I make PPOR into IP, the interest on $170k is deductible now?
b) then I leave the $30k in the PPOR (now IP) Loan....
c) after a few year, take out the $30k and invest it in property (as deposit), and the whole $200k is tax deductible?

 

[s050399b]

It doesn't matter what happens to the property - tax is based on what is done with the money.

The Y-man

A bit confused, are you saying that even if I were to convert this PPOR into IP, even the interest on the $170k loan is not tax deductible?.......

 

[Perp]

did you missed point (4) and (5)?......
I've rented the whole PPOR out......

No, we didn't miss that.

Once you've paid down a debt, you've permanently loss tax deductibility on that amount. So if you paid $30K of principal off to decrease the $200K debt to $170K, then only $170K of the debt relates to the purpose of buying the property. If you want to increase your debt back to $200K, the interest on the $30K is only deductible if the $30K is used for new income-producing purposes. You can't say "I'm just taking back some money that relates to purchasing the house" - the ATO don't let you work it that way.

If, however, you'd put the $30K into an OFFSET account, ie separate from the loan, you could take the $30K out of the offset again, and interest on the entire $200K would be deductible.

 

[jaycee]

If you take out $30k from your redraw, your interets bill will go up by whatever interest rate you are paying on your loan multiplied by $30k

IF you spend the $30k for business/investment purposes you can claim this extra interest - which means tyyour whole $200k will be deductable

IF you spend the $30k for non business/investment purposes (eg a holiday )you cannot claim this extra interest - which means your whole $200k will be deductable

 

[The Y-man]

A bit confused, are you saying that even if I were to convert this PPOR into IP, even the interest on the $170k loan is not tax deductible?.......

Sorry, was editing my post when you posted!

You can still claim interest on the $170k, and yes, if the $30k is used for investment later, you can claim the interest on that too.

The Y-man

 

[Perp]

Okay, so I can say that:
a) if I make PPOR into IP, the interest on $170k is deductible now?

Yes, because that $170K debt relates to buying the property, which you're now using to produce income, so the debt relates to an income-producing purpose.

b) then I leave the $30k in the PPOR (now IP) Loan....
c) after a few year, take out the $30k and invest it in property (as deposit), and the whole $200k is tax deductible?

Yes, but $170K is deductible against your current IP, and $30K against your new IP. Whilst that's really not relevant while you hold both, you have to keep in mind that if you sell the second IP, you go back to only having $170K deductible debt. So the $200K debt has two deductible portions - $170K relating to your current IP (that can never be increased again to $200K), and $30K for new investments, and the deductibility relates to those specific investments.

A bit confused, are you saying that even if I were to convert this PPOR into IP, even the interest on the $170k loan is not tax deductible?.......

No, we're not saying that. The $170K loan's interest is deductible as soon as it becomes an IP.

 

[Perp]

If you take out $30k from your redraw, your interets bill will go up by whatever interest rate you are paying on your loan multiplied by $30k

IF you spend the $30k for business/investment purposes you can claim this extra interest - which means tyyour whole $200k will be deductable

IF you spend the $30k for non business/investment purposes (eg a holiday )you cannot claim this extra interest - which means your whole $200k will *NOT* be deductable

My edit in red - don't confuse things even more, jaycee!

 

[Rolf Latham]

c) after a few year, take out the $30k and invest it in property (as deposit), and the whole $200k is tax deductible?

170 k would be deductible agains the OLD PPOR now IP, and the extra 30 would be deductible against the new investment

ta
rolf

 

[s050399b]

170 k would be deductible agains the OLD PPOR now IP, and the extra 30 would be deductible against the new investment

ta
rolf

Okay, it makes it very clear now.

I initially thought I need to quickly spend the $30k on investment before I turn the PPOR into IP! Phew!!

Okay, so I need to portion the interest!


what if I need to do some repairs before I rent it out? tax deductible? Or rent it out and then repair?

 

[Rolf Latham]

what if I need to do some repairs before I rent it out? tax deductible? Or rent it out and then repair?

2 separate questions there

1. The interest would be deductible either way
2. The repair cost MAY be handled very differently and may fall into capital expenditure and would need to be depreciated, depends on what we are talking about though.

ta
rolf

 

[jaycee]

my Edit In Red - Don't Confuse Things Even More, Jaycee!

Oops !!!!!!!!!!!