Deductability of redraw

[Andrew]

I think I read this somewhere so I wanted to check with the
authorities here before I go shooting my mouth off to others.

What I think I read (I may have dreamt this up), is that if you
buy a property with a 20% cash deposit, for example, you can
later refinance when the equity is available and up to 100% of
the original purchase will be deductable in terms of interest
payments.

So:

Purchase $100,000
Deposit $20,000
Interest payments on $80,000 deductable.

Later:

Value $125,000
Increase loan to $100,000
Interest payments on $100,000 deductable.

Like I said, it's very possible that I dreamt this so please don't
try it without advice. Which by the way is what I'm looking for,
does anyone know if this is correct?

andy

 

[Rolf Latham]

Hi Andrew

The extra interest is should be deductible provided that the extra funds are used for income producing purposes. Im not a tax specialist so Dale or Nick might want to confirm that

ta

rolf

 

[Andrew]

Thanks Rolf, I understand your point. My question is whether
the extra funds are deductable regardless of their use.

Sorry I wasn't clear about that.

andy

 

[Rolf Latham]

Hi Andrew income

Negative in My non professional view

Under Section 51.1 of the tax act you can make a deed against income producing assets, or things that may produce an income in the future

Ta

rolf

 

[DaleGG]

Hi Andrew

No. I am afraid that you can only get a tax deduction for the interest on the original borrowing of the $80,000 - even when the property grows in value and you refinance.

However, if you use that extra $20,000 refinnaced amount for income producing purposes then yes that interest portion would be tax deductible.

Sorry

Dale

Originally posted by Andrew
I think I read this somewhere so I wanted to check with the
authorities here before I go shooting my mouth off to others.

What I think I read (I may have dreamt this up), is that if you
buy a property with a 20% cash deposit, for example, you can
later refinance when the equity is available and up to 100% of
the original purchase will be deductable in terms of interest
payments.

So:

Purchase $100,000
Deposit $20,000
Interest payments on $80,000 deductable.

Later:

Value $125,000
Increase loan to $100,000
Interest payments on $100,000 deductable.

Like I said, it's very possible that I dreamt this so please don't
try it without advice. Which by the way is what I'm looking for,
does anyone know if this is correct?

andy