Remortgaging investment property
- Thread starter thydzik
- Start date
The purpose of the funds will determine its deductability and not the source. Basically if you use the funds for an investment the interest will be deductable but not if you use it to say buy a PPOR.
You may be able to get 100% if you X-coll but that has nothing to do with the ATO.
ATO doesn't set the rules as to the amount you can remortgage on anything.
I think you are asking whether the interest on re mortgaging will be deductible. It depends what you use the funds for.
I think you are asking whether the interest on re mortgaging will be deductible. It depends what you use the funds for.
As said above, you are free to borrow against the property, ATO has nothing to do with that.
What you use the funds for will determine if the ATO allows you to claim the interest paid. WHat are your plans for the money?
thanks again for the post
i would like to use the funds to cover non-deductable loan and am wondering if there is any structure which allows me to do this.
if I purchase a second investment property with a loan, I can claim the interest as a deduction.
when I purchased this initial property with a loan, I could claim the interest as a deduction.
is there anyway to get back into this above situation?
i would like to use the funds to cover non-deductable loan and am wondering if there is any structure which allows me to do this.
if I purchase a second investment property with a loan, I can claim the interest as a deduction.
when I purchased this initial property with a loan, I could claim the interest as a deduction.
is there anyway to get back into this above situation?
The ATO determines tax deductability based on what you use the money for, not the asset the loan is secured by.
If you borrow money against an investment property and use it to pay off non-deductable debt, then you've borrowed the money for a non-deductable purpose. You can't claim any tax deductions on the loan.
If you used the money to purchase another investment property or some shares, then the loan would be tax deductable.
It appears that you lived in a property, paid it off and have now bought another PPOR and the first property is an investment. There's not much you can do at this point. Had you planned for this event when you bought the first property, you could have used an offset account to keep your savings separate from the loan, instead of paying off the loan. The financial result whilst you live in the property is the same, but the deductability of the loan is treated very differently when you take money from an offset account, as opposed to redrawing it from a loan.
what if the property is mortgaged but 100% offset. Would I be able to use that money in the offset account for non-deductible assets?
edit: to clarify, an investment property is purchased with a loan, if the loan is serviced more than the minimum required. can that money be used for non-deductible assets?
edit: to clarify, an investment property is purchased with a loan, if the loan is serviced more than the minimum required. can that money be used for non-deductible assets?
You've touched on a fundamental difference betwen using an offset account vs using a redraw facility, especially with a tax deductable loan.
Redraw:
If you put money into a redraw facility on the loan, you're reducing the amount owing. If you then take money out of the loan using redraw, you're increasing the amount owing; in other words you're borrow the money back.
When you take money out of a loan for non deductable purpose (buying a PPOR or a holiday), you are increasing the amount you're borrowing. Since the purpose of that redraw is not tax deductable, that portion of the loan is no longer tax deductable.
Offset
When you put money into an offset account, you're simply putting it into a savings account. You still owe the same amount of money to the bank, you've just changed how the interest is calculated. If you don't believe me, check your statement. You still owe the same amount!
If you then take money out of the offset account, you have only taken money from your savings. You have not changed the amount you owe, thus you haven't borrowed that money. As a result you haven't changed the purpose of the loan and it will remain full tax deductable.
In the case of living in a property then making it an investment later, you should set the loan up in the manner you want it to look in the future - like an investment loan. If you treat it as a non-deductable loan one day and want to claim deductions on it later, you'll run into problems which you can't fix retrospectively.
To give you a direct answer: No, you will contaminate the tax deductability of the loan (part of the loan is now for deductable purposes and part of it is for personal use). Instead, put surplus money into an offset account rather than making extra repayments.
Redraw:
If you put money into a redraw facility on the loan, you're reducing the amount owing. If you then take money out of the loan using redraw, you're increasing the amount owing; in other words you're borrow the money back.
When you take money out of a loan for non deductable purpose (buying a PPOR or a holiday), you are increasing the amount you're borrowing. Since the purpose of that redraw is not tax deductable, that portion of the loan is no longer tax deductable.
Offset
When you put money into an offset account, you're simply putting it into a savings account. You still owe the same amount of money to the bank, you've just changed how the interest is calculated. If you don't believe me, check your statement. You still owe the same amount!
If you then take money out of the offset account, you have only taken money from your savings. You have not changed the amount you owe, thus you haven't borrowed that money. As a result you haven't changed the purpose of the loan and it will remain full tax deductable.
In the case of living in a property then making it an investment later, you should set the loan up in the manner you want it to look in the future - like an investment loan. If you treat it as a non-deductable loan one day and want to claim deductions on it later, you'll run into problems which you can't fix retrospectively.
To give you a direct answer: No, you will contaminate the tax deductability of the loan (part of the loan is now for deductable purposes and part of it is for personal use). Instead, put surplus money into an offset account rather than making extra repayments.
thanks,
so I am thinking,
if someone was in this situation, with surplus money 100% offsetting the loan.
if that loan was closed and then reopened (remortgaged) on the same terms.
If that surplus money in the offset was then used for personal expenses.
there should be no issue continuing to claim the interest, as long as the loan amount hasn't changed, and taking into account any missed principle repayments during the time of closing and reopening the loan, plus rate changes, etc, etc.
so I am thinking,
if someone was in this situation, with surplus money 100% offsetting the loan.
if that loan was closed and then reopened (remortgaged) on the same terms.
If that surplus money in the offset was then used for personal expenses.
there should be no issue continuing to claim the interest, as long as the loan amount hasn't changed, and taking into account any missed principle repayments during the time of closing and reopening the loan, plus rate changes, etc, etc.
Another potential way around this is to sell the house to your spouse (if it's in one name only or sell half if in two names so at least you gain back half the deductions) or to sell to a trust, so you can take a clean loan out against it. I'm not an accountant, but I believe this is ok. You'd want to check with someone qualified first though.
Of course, depending on how the property has been used you may be liable for stamp duty and/or cgt with both these options.
In this scenario, you're opening a loan and redawing the money into an offset account. You're then using that money for a non-deducable purpose. The loan would not be tax deductable.
Talk to your accountant about this sort of thing, but I think you're looking for a solutions where there isn't one, short of selling the property.
yes, but the initial loan amount doesn't change overall (the new vs the old).
The money you are using was surplus money in the offset account to begin with.
Will have to follow this up with an accountant.
Thanks everyone for the input.
look at the doughnut, not the hole. You got a heap of equity you can use to purchase a 3rd property, whose loan will be tax deductable. Or you can just sell the property and replace it with another again thats deductable.
Many times PPOR properties arent the best performers for investment properties in any case.
Many times PPOR properties arent the best performers for investment properties in any case.
Hiya
If one of you is on decent income, a 105% sale to a unit trust may be possible
yes this will cost a few bucks in new Stamps AND potentially CGT depending on how long its been an IP for.
A cashflow analysis will quickly tell you what the pay back period would be
Typically 18 mths to 3 years is not unusual
ta
rolf
If one of you is on decent income, a 105% sale to a unit trust may be possible
yes this will cost a few bucks in new Stamps AND potentially CGT depending on how long its been an IP for.
A cashflow analysis will quickly tell you what the pay back period would be
Typically 18 mths to 3 years is not unusual
ta
rolf
