deposit loan. didnt use all of it. another deductibility question

[r3ckless]

Borrowed $92k from existing security. Set this up as a new/separate loan. Lmi of $10k was capitalised onto loan. Just exchanged for a new place under cooling off last night and turns out i only need $69k for 10%&stamp duty. There will be $21k left over. Now i will put these funds into the homeloan/redraw and when required again for a new purpose.. i willsplit that loan and have a separate new loan of $21k. Unsure of its use. Either next prop purchase/shares/non deductible purpose ie buy a mazda rx7!

What i am concerned about is the deductibility/claimable portion of the lmi. As mentioned i got charged $10k lmi for a loan of $92k but i am only using$69k of the loan... How do i split up the deductibility component of the lmi?

 

[D_One]

Have your solicitor deposit the leftover into the offset account of the loan.

 

[EN710]

Have your solicitor deposit the leftover into the offset account of the loan.

I thought this might cause tax deductibility issue in the future?

 

[DaveM]

Put the funds into the loan account for the new split so it remains fully deductible if you use it for further investment.

If you choose to use the funds for non investment, LMI should be able to be pro-rated as a percentage of borrowed funds to deductible/non deductible

 

[Peter_Tersteeg]

Have your solicitor deposit the leftover into the offset account of the loan.

Sorry D_One, but in most cases this would cause a destructibility issue for the loan. It's fine if there's no other money ever going in or out of this offset account. If your employment income, rent or any other form of income goes into that offset account you will have mixed non deductible and tax deductible money.

The better solution is to move the funds back into the redraw facility of the equity loan.

 

[r3ckless]

Sorry D_One, but in most cases this would cause a destructibility issue for the loan. It's fine if there's no other money ever going in or out of this offset account. If your employment income, rent or any other form of income goes into that offset account you will have mixed non deductible and tax deductible money.

The better solution is to move the funds back into the redraw facility of the equity loan.

Oksure so place funds back into redrawandsplit when required. Any implication ofclaimingibterest on the $10k lmi asthatpremium ischarged for a$92k loan but i only used $69k?

 

[Terry_w]

I wouldn't think there are any issues with claiming interest on the loan for the LMI if none of the loan relates to private use. If you place the excess cash into the loan again there are no issues - the whole LMI would relate to the original loan which is used to buy an income producing property.

I would avoid putting it into an offset.

 

[r3ckless]

ok good to hear that the full lmi component can de ducted against the income prodcuing asset! I'll organise a split of the unused $21k amount and set that aside for next investment purchase!

 

[Rob G.]

Oksure so place funds back into redrawandsplit when required. Any implication ofclaimingibterest on the $10k lmi asthatpremium ischarged for a$92k loan but i only used $69k?

One view is that the balance of the loan has not been used to earn assessable income as per the requirement of s. 25-25.

This would mean that a deduction apportioned by 69/92 x $10k = $7500 (over 5 years pro rata by # days per year).

As to the interest on capitalised LMI, similar arguments could apply.

Need to get specific advice