refinance, LOC still tax deductible?

[MFG]

Hi,

i am thinking of refinancing the property with LOC drawn, LOC is fully used for IP purposes only. If i refinance this property with another bank, i will be paying off the LOC by setting up another LOC from the new bank with the same property.

Is the interest off the new LOC from the new bank also tax deductible? Am I on the right track?

I think i am now borrowing to pay off the borrowed amount, hence it is still for investment purposes and should still be tax deductible. am i correct?

Many thanks.
Scott

 

[Peter_Tersteeg]

Your existing LOC will need to be paid off in full and closed with the current lender when you refinance. You should probably set up a comparible loan structure with the new lender.

Keep in mind that a LOC is just another loan which is secured by your property. The only difference between your regular loan and a LOC is some of the features. Banks still want dibs on your property if you default on either and second mortgages (regardless of product type) usually aren't cost effective.

 

[MFG]

hi PT Bear,

thank you for the infor. i am fully aware of the setup and the property as the security of LOC.

what is dibs?

cheers,
Scott

 

[Peter_Tersteeg]

what is dibs?

'Dibs' as in 'rights too'...

 

[MFG]

Thanks Peter.
Do you reckon that the new LOC is tax deductible too?

Thanks
Scott

 

[Terryw]

Are you saying you will be paying the LOC interest with another LOC? ie borrowing to pay interest?

technically this would be deductible if the first LOC was used for only investment purposes. But the ATO could still deny the interest on the second LOC if they think it is a scheme with a dominant purpose of increasing deductions.

Best to seek professional help (I mean accountant not psychiatrist)

 

[MFG]

Terry,

I am thinking of moving my IPs loans and the LOC to another bank. The LOC is fully for investment purposes.

Have you heard of cases where ATO deny interest from the new LOC?

cheers,
Scott

 

[Terryw]

Hi Scott

You are really only refinancing one loan with another then. If the original loan is deductible then it is likely the new one will be.

you would only have to worry if you are borrowing more or changing the loans around in some way.

 

[MFG]

Terry,

thanks for the clarification. Yes, i am only refinancing one from another.

cheers,
Scott