LMI on PPOR - deductible?

[s0805]

Just wondering if someone had similar scenario where they had to pay LMI on PPOR to fund IP....

currently my existing LVR on PPOR is <80% and as per my calculation if I'll take it to 90% i get enough money to fund my next IP.....but wondering will be tax deductible over the next 5 years or not.....I mean purpose is to fund investment so..

Also if above is ture....then how do you arrange that from structure point of view...i mean i can ask lender to add LMI to borrowed amount (so basically they will top off the existing PPOR loan)......this doesn't seem right....

Also by doing above are you double dipping? claiming LMI over 5 years as well as interest on that for the life of the loan....

thanks

 

[monalisa]

I think part of the LMI would relate to your PPOR - given you are below 80% ; and LMI is calculated on the full loan, and not just the additional loan. I would take part of the LMI to be non-deductible. I may be wrong though!

 

[Rolf Latham]

best ask ur tax professional

Id argue that if the funds released are purely for Income producing purposes, the expenses thus incurred are depreciable /deductible around the normal rules - ie interest on the premium is deductible against the IP icnome and the premium itself is written off flat line over 5 years as a borrow cost.


Some tax pracs will want to apportion relative to PPOR loan..............

ta
rolf

 

[Colin Rice]

Also if above is ture....then how do you arrange that from structure point of view...i mean i can ask lender to add LMI to borrowed amount (so basically they will top off the existing PPOR loan)......this doesn't seem right....

Most lenders will apportion the LMI across both loans.

Agree with Rolf but best to check with your Accountant.

 

[Jamie M]

I share the same view as Rolf - but I'm also not an accountant

From memory, I think my accountant claimed it for me years back.

Cheers

Jamie

 

[Terry_w]

We had a thread on this recently. I argued it wasn't deductible at all, but I think PaulG argued it would need to be apportioned -Monalisa's approach above.

 

[Aaron_C]

You'd think it's an area of law that would be 100% settled by now - it's not as if this is the first time someone has done this.

 

[Rob G.]

If the arrangement involves the refinancing the original loan secured against the PPOR then you have a new borrowing of the entire amount.

An apportionment is necessary because s.25-25(3) refers to apportioning by the use of the entire funds borrowed.

There is nothing in the legislation that says you can notionally treat it as a "top up" so the legal and commercial arrangement of renegotiating a new loan with new terms would prevail.

If you wished to apply for a second mortgage with the original loan subsisting then things are more open to argument based on the contractual details.

 

[s0805]

Thanks all for your response...for some reason didn't receive forum notifications.....

so from what i gather is it is discretion to how your personal accountant wants to proceed...rather than defined law.
in my case it is refinancing with the same lender....

Those in favour of claiming...any idea how did you structure this if you are wanting to claim it over 5 yrs as well as interest on it....
cause lender will add the LMI on top off the newly refinanced (90% LVR) PPOR loan...which basically means deductible (LMI costs)
and non deductible (PPOR loan) will be in same account (mixed loan)?

in my case I'll be also doing the above for my IP loan as well...can i ask lender to add my PPOR LMI on IP loan...so that way i can keep deductible and non
deductible money separate?

 

[Paul@PFI]

If the arrangement involves the refinancing the original loan secured against the PPOR then you have a new borrowing of the entire amount.

An apportionment is necessary because s.25-25(3) refers to apportioning by the use of the entire funds borrowed.

There is nothing in the legislation that says you can notionally treat it as a "top up" so the legal and commercial arrangement of renegotiating a new loan with new terms would prevail.

If you wished to apply for a second mortgage with the original loan subsisting then things are more open to argument based on the contractual details.

I would look at the nexus between cost and the use of the new borrowing. If for example you upped the facilty by $100k and that triggers LMI then use the $100K for a new IP its likley the LMI costs to be deductible. Every instance is different. To be certain a private ruling may be the only way to achieve certainty of the tax treatment.

 

[s0805]

I would look at the nexus between cost and the use of the new borrowing. If for example you upped the facilty by $100k and that triggers LMI then use the $100K for a new IP its likley the LMI costs to be deductible. Every instance is different. To be certain a private ruling may be the only way to achieve certainty of the tax treatment.

Paul, nexus will be clear and easily explained as long as it is used for investment purposes.....what i could be problematic is how to structure this....as PPOR is non deductible and LMI deductible.....surely you cannot mix that as that would be bigger problem from tax point of view.....thoughts?