Reduce PPR loan With IP Line of Credit ?

Hi Somersoft people.

I went to a property investment seminar way back in 2001 and the host told us that you could draw out the equity from an investment property and use it to pay down / pay off a PPR mortgage. Are there any tax issue with doing this?

thanks in advance

bob
 
Hi Bob

Deductibility is determined by purpose.

If you take out a loan against your IP to pay down your PPOR - what's the purpose? It's not an investment purpose - therefore, wouldn't be deductible.

I wonder if any seminar goers from 2001 have found themselves in trouble with the ATO.

Cheers

Jamie
 
Hi Somersoft people.

I went to a property investment seminar way back in 2001 and the host told us that you could draw out the equity from an investment property and use it to pay down / pay off a PPR mortgage. Are there any tax issue with doing this?

thanks in advance

bob

Hiya

Yes, but not in that simplistic way.

the method described was never possibly, because as Jamie says, purpose determines deductability.

"tax compliant" methods will likely require some form of investment to make it happen, and obviously the blessing of your tax adviser

ta

rolf
 
From my 2004 edition of Trust Magic, the process is as follows:

1 - Trust Buys IP for say $100k
2 - Trust Revalues IP at say $150k
3 - Trust distrubutes this equity to the beneficiaries with a book entry creating a liability
4 - the Trustee obtains finance using the IP as security to pay this liability

The result: the beneficiaries get tax free money, the trust can still claim deductions for the loan.

I am yet to run this one past my accountant
 
That is similar to the refinancing principal. Not sure if a trustee could borrow to make a distribution of capital and cLiam the interest though.
 
thats what accountants are for... investors just need to do the creative thinking and head the accountant in the right direction :)


Rob G... are you also Bob G?
 
Yes, I plan on using that strategy as well as capital distributions to smash the PPOR loan.

Another strategy I am using is to pay the deposit from the loc too by first paying down the PPOR and increasing the limit on the loc
 
Top