Splitting loan for purchase & reno

[ddan]

Hi,

Just wanted some advice around splitting loans.

Say I have an equity loan of 100K for investments.

I buy an IP for 250K at 90%LVR. I settle on the IP and my total costs of purchase including deposit come to 40K (all of which came from equity loan).

For tax purposes, do I then ask the bank to split my equity loan into two loans (60k & 40k)?

And what if I am doing a reno straight after settlement to the tune of 10K? is that another split loan or do I bundle that in with the 40K and get a 50K split?

thanks!

 

[Marty McDonald]

Seek advice from an accountant but my 2cents worth is that as long as you don't mix the use of the $100K up ie you only ever use these funds for investment purposes and you don't intend to pay down the principle of the loan it is fine to leave as 1 loan.

However there is more to consider. Where is $50K or $60K currently sitting? Is it available redraw in the loan account itself or is it parked in a separate offset account? If it is the latter it may be best to split the loan.

 

[ddan]

Thanks Marty,

It is in a separate offset. My intention is to use 50K for an IP purchase and the remainder for 'mixed use' (buffer, consolidation etc).

Can I put the reno costs + purchase costs together? ie 50K or do I need 2 split loans? 40k and 10K?

thanks

 

[Paul@PFI]

"In an offset" isn't same as a new loan draw down....Take care.

A loan is a loan account and an offset account is NOT A LOAN ACCOUNT. You often cant deduct 100% interest if the proceeds borrowed are credited to an offset and not traceable as the original USE of the borrowed money.

Its like taking a cash advance on a Amex card and using the cash to buy an airline ticket. Amex wont insure the travel. You must use the card to buy the ticket. You may think its same-same but it isn't.

 

[Marty McDonald]

You can put the $10K together with the $40K for total $50K I reckon that's fine, but then I would split the accounts into 2 lots of $50K if it isn't too hard. Then I would pay down the new account to $1 owing with $49,999 available redraw for the next purchase.

 

[Terry_w]

I don't like the offset approach. I suggest you don't park borrowed funds in an offset.

Ideally you would use a loan and split it so that each split relates to one property. But if you cannot split it is no big deal as long as you do not mix investment and personal expenses.

 

[Paul@PFI]

I don't like the offset approach. I suggest you don't park borrowed funds in an offset.

Ideally you would use a loan and split it so that each split relates to one property. But if you cannot split it is no big deal as long as you do not mix investment and personal expenses.

It can become a big deal if you sell one. Lender wont want a partial repayment and leave some loan for the other deductible use. They tend to take the view its all or nothing.

 

[ddan]

Thanks for the advice fellas, much appreciated.

I will move the remainder back to the loan acct, they all offset my mortgage anyway (cba).

Thanks!