Original Purpose of Borrowing

From: Duncan M

My accountant informs me that the ATO no longer requires a property to be refinanced when an Owner Occupied Property becomes an Investment Property in order for the interest to be deemed deductible.. they apparently wised up to the fact that it was a contrived activity and that the banks were the only winners, anyone got a URL or an ATO reference as I'd like to see it..

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Reply: 1
From: Owen .

I never new the ATO required refinancing in the first place. We moved out of our home in 1995 to go to NZ, rented it for 14 months or so, claimed tax refunds on everything, moved back in 1996 and are still living in it with no refinancing.

It remained our primary residence so we still have our CGT exemptions but as soon as it was rented it became an IP as far as the ATO was concerned.

I assume the purpose of the borrowing changes depending on the properties residents - owner/occupiers or tenants. The original purpose is irrelevant unless you bank says it must now be an "investment loan" instead or a "home loan".
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Reply: 1.1
From: Simon .

Same thing happened to me when I moved out of our home permanently and it became an IP for over four years until it's sale.

In fact I called the bank to see if we needed to change our loan as the investment loan had a higher rate then.

the banker said "look mate we are never going to find out if you are renting. So don't tell us" Pretty refreshing for a banker!
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Reply: 2
From: Andrew Hawkins

You never had to refinance to claim the interest, but you could only claim the interest on the current balance.
You could not borrow more against that property to purchase an owner occ and claim the extra interest.

My understanding

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Reply: 2.1
From: Owen .

That's right. Say your claiming the interest on a $100K loan for a rental property (any rental property even if it was originally your home). If you then increase that loan to $150K and use that extra $50K for personal use, you can't claim the extra interest on the $50K. It doesn't matter that it is in the same loan or even that it is secured against an IP.

It's not what the money was originally borrowed for, it's what it is currently being used for that determines if you can claim the interest of not. How it's structured doesn't matter.
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