Hi all. This is a bit of a long term planning question.
My partner and I recently moved into a unit that he owns, it is the first time he has lived in it, renting it out for the past 5 years since it was purchased. The initial loan of $275K has been paid down to $100K (fully paid down, not offset account). Obviously the interest was all tax deductible up until the point we moved into the unit. The current value is around $390K.
The question is that we are planning on buying a bigger place to live in together in 2-3 years. Currently all our finances are separate and we intend to keep it that way until the relationship is a bit more long term. When we move the unit will turn back into an IP.
My concern is that my partners intention to pay the loan down to zero before we move isn't going to maximise tax benefits further down the track as I gather if he redraws the mortgage and uses the money as a large deposit on our PPOR none of the interest would be tax deductible. I mentioned that to him on the weekend but he thought he could sort it all out with an accountant when we were ready to buy in a couple of years. I thought I'd better check out the options now so if there are no good refinancing strategies he can halt additional loan payments and at least have the $100K as tax deductible later on.
Any suggestions on some (completely legitimate non ATO eyebrow raising strategies) to maximise benefits further down the track? I thought perhaps refinancing or redrawing all the excess payments (as he's a good 15 years ahead on repayments) and putting them into an offset account so no additional interest is paid.. not sure if that is appropriate or not. The main intention is to have the highest loan possible against the IP and the lowest loan possible against the PPOR.
My partner and I recently moved into a unit that he owns, it is the first time he has lived in it, renting it out for the past 5 years since it was purchased. The initial loan of $275K has been paid down to $100K (fully paid down, not offset account). Obviously the interest was all tax deductible up until the point we moved into the unit. The current value is around $390K.
The question is that we are planning on buying a bigger place to live in together in 2-3 years. Currently all our finances are separate and we intend to keep it that way until the relationship is a bit more long term. When we move the unit will turn back into an IP.
My concern is that my partners intention to pay the loan down to zero before we move isn't going to maximise tax benefits further down the track as I gather if he redraws the mortgage and uses the money as a large deposit on our PPOR none of the interest would be tax deductible. I mentioned that to him on the weekend but he thought he could sort it all out with an accountant when we were ready to buy in a couple of years. I thought I'd better check out the options now so if there are no good refinancing strategies he can halt additional loan payments and at least have the $100K as tax deductible later on.
Any suggestions on some (completely legitimate non ATO eyebrow raising strategies) to maximise benefits further down the track? I thought perhaps refinancing or redrawing all the excess payments (as he's a good 15 years ahead on repayments) and putting them into an offset account so no additional interest is paid.. not sure if that is appropriate or not. The main intention is to have the highest loan possible against the IP and the lowest loan possible against the PPOR.
He's done well to pay it down so quickly (benefits of FIFO work) but I suggested it would be worth considering keeping the loan at the same level interest only and addressing his other investing goals now. Perhaps saving money in offset for home deposit or starting a share portfolio. He's a bit straight down the line though that all debt is bad and property should be paid off as quick as possible and never be sold. 
