LMI - deductible or not deductible?

[smator]

Hi guys

Sorry for another question..

I've got my unit which is my PPOR which currently has an LVR of 80%. If I were to get this revalued after doing a reno at increase LVR to 90% and used the full amount of the new funds as a deposit for an IP, would the full amount of the LMI be deductible?

Would this change if the depending on whether the unit become an IP itself or stayed as my PPOR? (would split the loan if it was staying as PPOR)

Thanks in advance!

 

[Terry_w]

There are 2 views on this.

1. Yes because it relates to a loan used to purchase an investment property.

2. Not in full, but maybe in part because LMI is charged on the total loan amount. Therefore some of it relates to the owner occupied portion. So only the part associated with the investment portion may be deductible. overall this would be a small percentage.

You should also consider when the LMI is incurred and when the investment property is purchased. If you increase the loan now and then use it to purchase an investment property in 2016 then none of the LMI would be deductible now. Some or all may be deductible in 2016, but could you deduct 5 years worth or just 4 years because 1 year has already passed???

And whether the original property is an investment or a PPOR should not change anything.

To improve your chances of claiming the LMI in full I suggest
Keep the original loan at 80% LVR
Set up a separate loan of $X0,000 taking the LVR to 90% and ask the lender to charge the LMI to this loan account.

 

[Rolf Latham]

Seek personal and specific advice

As a mug Id say if the primary purpose was to draw funds for IP purposes, the full LMI is deductible over 60 mths.

However, diff tax peops have very diff views on this so maybe applying for a Private ruling is useful for future posters ?

ta
rolf

 

[smator]

Thanks guys, will definitely be getting specific advise before doing it, just wanted to know if it was potentially possible.

 

[Paul@PFI]

It would depend if the original loan is refinanced. If it is not and only new funds are advanced to buy an IP then the LMI is deductible against the new IP.

Remember just as interest is deductible based on use and not the loan security then borrowing expenses are in the same boat.

 

[smator]

To improve your chances of claiming the LMI in full I suggest
Keep the original loan at 80% LVR
Set up a separate loan of $X0,000 taking the LVR to 90% and ask the lender to charge the LMI to this loan account.

Would you have to use the same bank for this? Assume this means you don't touch the current loan (its already IO).

 

[Terry_w]

Would you have to use the same bank for this? Assume this means you don't touch the current loan (its already IO).

You would have to if you are using the same property as security. You don't need to change the existing loan if it is IO

 

[Paul@PFI]

Yes. Terry refers to same point I made. Don't refinance the existing loan. It would be the same lender unless you want a second mortgage problem.

If you use a different lender then it would include a refinance of the former loan so LMI would be part non-deductible. Best avoided.

 

[smator]

Yes. Terry refers to same point I made. Don't refinance the existing loan. It would be the same lender unless you want a second mortgage problem..

Does this mean that I could use a different broker to obtain this finance? I used a broker to obtain the original loan and it was only in January. I don't think he is the right broker going forward as I don't think he has experience in people accumulating property. I believe there is a claw back if I refinance the loan.

 

[Terry_w]

Does this mean that I could use a different broker to obtain this finance? I used a broker to obtain the original loan and it was only in January. I don't think he is the right broker going forward as I don't think he has experience in people accumulating property. I believe there is a claw back if I refinance the loan.

Brokers are middlemen, it would make no difference from a tax perspective who you used.

 

[smator]

Brokers are middlemen, it would make no difference from a tax perspective who you used.

Sorry was meaning in relation to claw back of commission paid by the lender to the broker. I think if I refinance before a years up then the broker will pass charge me this clawback as a fee for the service provided.

 

[Terry_w]

Sorry was meaning in relation to claw back of commission paid by the lender to the broker. I think if I refinance before a years up then the broker will pass charge me this clawback as a fee for the service provided.

That will depend on the terms of your contract with the broker.

 

[Rolf Latham]

Sorry was meaning in relation to claw back of commission paid by the lender to the broker. I think if I refinance before a years up then the broker will pass charge me this clawback as a fee for the service provided.

If u follow the advice offered by the tax experts here, there won't be a clawback.

The base loan stays as is, and a new separate loan will be created

Bold broker keeps their comm.

Bit rough for the new broker? They will be paid a weeny amount but most will do it because there is more business there

Ta
Rolf