PPOR to IP - Clarification

[Pete_d]

Offset or Redraw

Hi Guys,

I know there are over 100 PPOR to IP threads, I've read quiet a few but I'm still a little confused


Here's my situation.

PPOR Equity - $150K
PPOR P&I Loan - $250K
Redraw Available - $10K
I have just had a windfall of approx $50K.

As I understand it.... once renting out the old PPOR it becomes an IP and the outstanding loan becomes tax deductable (as long as rented, or available for rent). However, it gets a bit trickier for offsets and redraw facilities.

The advice that everyone seems to recommend here, is to convert the P&I loan to IO and set up an offset account for the extra repayments. Then when you convert the PPOR to IP the offset can be drawn out and the remaining debt is tax deductable, right? Anyone have links to ATO rulings to say this is ok?

As I understand it if I put this extra $50K into the redraw, I couldn't draw it out to fund a new PPOR (and maintain the deductability). This is part of TR2000/2 http://law.ato.gov.au/atolaw/view.htm?locid='TXR/TR20002/NAT/ATO'#P53 . I don't want to "contaminate" these funds but locking them into my current PPOR, if I plan to convert it to an IP in 5 years time. So if I am right redraw=bad but offset=good from a flexability point of view.

So is this the way to go?

Step 1 - Change from a redraw facility to an offset facility
Step 2 - Put $50K into offset
Step 3 - Convert from PI to IO

When ready....
Step 4 - Withdraw offset available for deposit for new PPOR
Step 5 - Rent out old PPOR and maximise the proportion loans that is deductable by drawing out "un-contaminated" equity to use for new PPOR.
Step 6 - Live life be merry


Thanks in advance my head is spinning

P.S Understand the disclaimers, personal circumstances, not advice , see accountant, blah, blah, blah.

 

[yo yo ma]

The advice that everyone seems to recommend here, is to convert the P&I loan to IO and set up an offset account for the extra repayments. Then when you convert the PPOR to IP the offset can be drawn out and the remaining debt is tax deductable, right?

So is this the way to go?

Step 1 - Change from a redraw facility to an offset facility
Step 2 - Put $50K into offset
Step 3 - Convert from PI to IO

Thanks in advance my head is spinning

No need to be confused Pete, you have got a perfect understanding of it... Yes, it is the way to go! Thanks for including the disclaimer, saved me putting it in

 

[Pete_d]

Thanks Yo-Yo,

Many people on this site recommend the strategy, but I was wondering does anyone have any links to ATO saying this is ok. I search both this site and the ATO site for ages and couldn't find anything.

 

[Pete_d]

After some more searching on the forum I found this thread, which covered the issue.

http://www.somersoft.com/forums/showthread.php?t=44583&highlight=Offset&page=3

From tdh78au....

I reckon if you put together "TR 2000/2 paragraph 40" with "TR 93/6" and "TR 98/22"; that's enough for any savvy investor (+ ATO) to deduce that IP loan + offset arrangement is legit.

Tdh78au then tried to confirm this with ATO but got shut down. Any luck getting to the bottom of this Tdh78au

 

[MissMuffitt]

I have a question...

We have bought another house. This one is at Branyan just outside of Bundagerg. (Number 4...woohoo)

My question is this. When would this be considered able to be claimed as an IP expense? We are going to rent out our current PPoR in Gladstone.This house needs new carpet in the lounge room as it's about 13 years old.

If we list with a RE as being available for rental and then get the carpet installed, is that considered ok?
I have been told that I would need to get a professional cleaner in to get the house up to standards for tenants (Spotless). Would these costs be IP claimable if done after signing an PM agreement with the RE.

Any help with these questions would be very gratefully accepted.

MM

 

[MissMuffitt]

Any advice... Please..

Sorry to bump this thread again, but I would really appreciate any advise about this carpet situation.

If we make the house available for rental from say the 15th and have the carpet installed on the 16th, will I be able to claim it on Depreciation, or does it not really matter when I get it gets laid??

 

[tdh78au]

Tdh78au then tried to confirm this with ATO but got shut down. Any luck getting to the bottom of this Tdh78au

sorry buddy .... got a very generic response back from the ATO.
I could pursue them with a private ruling ..... but why bother.

I've decided to change to an accountant who does understand property a bit better than my current one.

hope this helps,

 

[Alex P Keaton]

Sorry to bump this thread again, but I would really appreciate any advise about this carpet situation.

If we make the house available for rental from say the 15th and have the carpet installed on the 16th, will I be able to claim it on Depreciation, or does it not really matter when I get it gets laid??

bump i would like to know too