Convert PPOR to IP and Redraw for new PPOR

[Europa]

Hi all,

Posting on behalf of a family member in the following situation which I imagine is fairl common.

Currently live in PPOR, loan principal fully paid down (no offset) but still active and redraw available
Want to buy a new PPOR and convert existing PPOR into IP
Obviously they can't redraw from the current PPOR to buy the new PPOR and maintain deductibility on the IP interest as the 'purpose test' kicks in and 'purpose' of redraw has been to buy new PPOR.

The PPOR loan was taken out many years ago without any thought about future flexibility. Offset account would have prevented this.

Any innovative ways to convert current PPOR to IP redraw from existing PPOR to purchase new PPOR and maintain interest deductibility on IP?

Thanks

 

[MRO]

No - there isn't any options available.

 

[marg4000]

Only way would be to do some sort of sale - e.g., if in joint names then one partner could "buy" out the other 50% with borrowed funds which would carry some tax benefits.

Of course, this may have stamp duty costs depending on the state.
Marg

 

[DaveM]

I expect its probably going to fall afoul of some ATO rule somewhere, but could they sell the property to someone (family, trust etc) then buy it back. Will be double stamp duty but vs no interest deductability at all, may have a relatively short payback time.

 

[Europa]

Thanks all,

As I had told them, there doesn't seem like much they can do. Costly lesson in planning ahead to ensure maximum flexibility when choosing loan arrangements..

 

[Terry_w]

I can think of 2 solutions:

1. Sale to a stranger
2. Sale to a spouse or trust etc.

Another much slower partial solution would be to set up a LOC and borrow for all expenses for the property - rates, insurance etc. However this would take years before any major benefits.

 

[Europa]

I can think of 2 solutions:

1. Sale to a stranger
2. Sale to a spouse or trust etc.

Another much slower partial solution would be to set up a LOC and borrow for all expenses for the property - rates, insurance etc. However this would take years before any major benefits.

Thanks, so if they take an LOC against the IP and then use that to pay for the IP's expenses then the interest on the amount used in the LOC becomes deductible? purpose of borrowings=costs of IP..

So effectively, instead of using 'cash' to pay IP expenses they can place the cash into the PPOR mortgage (reduce non deductible debt) and have all expenses paid through the LOC creating some deductible debt?

 

[Terry_w]

Yes, thats it.

Seek your own tax advice though.