Making your PPOR loan deductible?

[Terry_w]

In this scenario, ATO won't come knocking on your door if you pay down loan and reborrow?

Only to congratulate you?

 

[remingbi]

thanks terry
so with the capitalised interest, since u haven't paid it, is it a tax deduction in that financial yr or is it added to the principle amount put in
eg 200k+300kmargin loan
initial value 500
capitalised interest 50k
final value on selling portfolio 800k

In calculating capital gains is it 800-500 or 800-500-50

If u can deduct the capitalised interest in financial yr i assume it is 800-500
That would mean getting a tax deduction for a loan repayment u haven't made

And if u were putting dividends into ppor loan, is that then a problem with ato?

thanks

 

[Terry_w]

thanks terry
so with the capitalised interest, since u haven't paid it, is it a tax deduction in that financial yr or is it added to the principle amount put in
eg 200k+300kmargin loan
initial value 500
capitalised interest 50k
final value on selling portfolio 800k

In calculating capital gains is it 800-500 or 800-500-50

If u can deduct the capitalised interest in financial yr i assume it is 800-500
That would mean getting a tax deduction for a loan repayment u haven't made

And if u were putting dividends into ppor loan, is that then a problem with ato?

thanks

You have paid capitalised interest by borrowing it. It is like capitalising LMI into a loan - you have borrowed to pay it and can still claim it as a borrowing expense.

Any 'scheme' to capitalise interest to pay off the home loan sooner is potentially problematic with the ATO.

 

[remingbi]

thanks terry
so i suppose if the dividends were used as a deposit for another ip rather than
ppor loan that would be ok?

sorry to sidetrack
On a side note, what is the approximate cost of setting up a discretionary trust and a company with a solicitor such as yourself

Also,I have heard that using your existing trading company name may not be a good idea for a corporate trustee of a trust,and that setting up a sister company just for ips could be beneficial because of
1. possible litigation(asset protection)
2. more flexibility for managing serviceability, because as the trading company is the main source of income, by having a sister company, in effect a non trading company,u don't need to send company financials of the trading company, only rental statements of the sister company?

your thoughts

thanks in advance

 

[neK]

What I mean is that I currently have a mortgage of $600k. So in order to be able to transform this into a deductible loan once I turn my PPOR into an IP, I'm not allowed to pay it off, so I'd have to set up an offset account and slowly put $600k into it.
For simplicity's sake let's assume my house is worth $1M (it's not).
This means that I can take out an extra $200k LOC which I can use to invest with (20% LVR).

However, if I had the $600k offset sitting against the $600k, I could instead pay it back and get a $800k LOC instead.
Assuming 20% deposit and 5% costs, this means that I can only buy $800k of property if I have the money in an offset as opposed to $3.6M if I pay the principle back.

I know that this is probably a little oversimplified, but hopefully it illustrates the point that I'm trying to make.

Splugey, that is my point. In doing so, you are potentially painting yourself into a corner whereby if you do decide to change your PPR into an IP, you are either faced the situation of having to sell or not getting any tax deductibility on the loan.

Obviously there is the opportunity cost, however whats the harm in keeping getting the $200k as a LOC, keeping $600k loan as is with $600k in the offset.

Then if the opportunity comes, you can easily put $600k from the offset into the loan, draw the $600k back out. At least you've kept your options open the entire time.

I don't see the need to back yourself into a corner this early.