captialise interest?

[ericproperty]

Hi guys, just need some tax advice pls?

an example.

2 IPs,

IP1 valued at 600k, has 300k mortgage on it,

IP2 valued at 500k, has 300k mortgage on it, also has an offset account attached.

overall IP1 + IP2 = 1,100k, loan = 600k.

now the investor would like to increase loan to 800k (1,100k *0.8 = 880k > 800k, which is still under 80%, and if serviceability is not an issue), the investor will be able to borrow 800k - 600k = 200k, the investor would like to put 150k into the offset account (which is attached to IP2) for all the negative gearing expenses and other maintenance expenses, using the 200k-150k =50k for next IP purchase.

question:

is the investor breaching tax ruling buy increasing loan and put them into the offset account? is the overall 200k tax deductible?

thanks

 

[pinkboy]

Hi guys, just need some tax advice pls?

an example.

2 IPs,

IP1 valued at 600k, has 300k mortgage on it,

IP2 valued at 500k, has 300k mortgage on it, also has an offset account attached.

overall IP1 + IP2 = 1,100k, loan = 600k.

now the investor would like to increase loan to 800k (1,100k *0.8 = 880k > 800k, which is still under 80%, and if serviceability is not an issue), the investor will be able to borrow 800k - 600k = 200k, the investor would like to put 150k into the offset account (which is attached to IP2) for all the negative gearing expenses and other maintenance expenses, using the 200k-150k =50k for next IP purchase.

question:

is the investor breaching tax ruling buy increasing loan and put them into the offset account? is the overall 200k tax deductible?

thanks

Yes, the purpose of the funds must be for investing.

There is heaps of this exact question and similar scenarios askes on SS. Just use the search function.


pinkboy

 

[ericproperty]

thanks Pinkboy,

did some search on SS, I might have used the wrong key words, it did not come out with lots of useful posts or links.

 

[Peter_Tersteeg]

You're saying you'd like to draw down on the equity, put it into an offset account and use it to pay shortfalls?

You can get private rulings, but generally I'd say that this is a very bad idea.

I can think of one particular example when a client wanted to so similar, got advice from a well known property accountant that this would be okay and they'd get a private ruling from the ATO. They started doing it, the ATO said no and they spent years fixing the problem.

 

[Rolf Latham]

capping interest within acceptable guidelines is quite acceptable.

seek specific tax advice

ta
rolf

 

[ericproperty]

thanks Peter and Rolf.

I am very confused with tax issue about the loan.

with the above example, my idea is that the draw down on the equity (putting into an offset account) is still for investment purpose, the offeset account is attached to the investment. they are all completed nothing to do with PPOR. it is not good?

if yes, what is the best way to do it?

how to use the equity with one lender, to purchase a IP by using another lender? (using the equity from first lender as deposit, and borrowing the rest from another lender?

thanks again Peter and Rolf.

 

[Rolf Latham]

If you have a PPOR debt it can be problematic since there has been at least one specific ruling covering same.

id suggest you dont seek DYI brain surgery advice on a public forum, but seek the services of a specialist in the area of expertise

ta
rolf

 

[ericproperty]

good call Rolf,

 

[Terry_w]

question:

is the investor breaching tax ruling buy increasing loan and put them into the offset account? is the overall 200k tax deductible?

thanks

Not breaching any laws, but the interest on interest deduction could be denied by the ATO using Part IVA of the 1936 Tax Act.

Even without this there will be a good chance the interest will not be deductible. because of the parking in the offset.

 

[ericproperty]

thanks Terry.

could you pls advise what is the best way to do it? (draw equity from IPs with one bank to buy)

thanks again

 

[Terry_w]

thanks Terry.

could you pls advise what is the best way to do it? (draw equity from IPs with one bank to buy)

thanks again

Use a LOC to access equity. Pay directly from the LOC without transferring to another account. Pay interest on the LOC each month, unless you get a private ruling.

Once LOC is fully or largely drawn convert it into an IO loan. Maybe incorporate the respective portions into an increase in the main loan on each property.

 

[ericproperty]

thanks Terry