tax deductability scenario......

[natedog]

Hey all, i am back for some more wisdom.
Heres the deal, we have revalued our PPOR, its gone from $370K to $410k, freeing up approximately $36k (90% 0f 40k). These funds are to be used to help fund the purchase of another property which will be our new PPOR.Our original property will be kept for IP.Question..If we increase our mortgage on our existing PPOR (by $36K) BEFORE it becomes an IP, is the interest paid on this also tax deuctale along with the rest of our already exhisting mortgage????

 

[natedog]

sorry guys that should read "deductable"

 

[Rolf Latham]

Hiya

Id guess no because the debt incurred is not for income producing purposes, but to buy a PPOR ?

ta

rolf

 

[GreatPig]

Nate,

I'm no accountant, but I'm led to believe that if you use the borrowed money to fund your new PPOR, then the interest on those funds will not be tax deductible.

I gather it's what the funds are used for that's important, not what they're secured against.

GP

 

[natedog]

Hiya

Id guess no because the debt incurred is not for income producing purposes, but to buy a PPOR ?

ta

I knew that would definitely be the case if we had an exhisting IP mortgage and then refinanced to purchase PPOR, But i am still wondering if it were refinanced BEFORE it became an IP, whether the timing of it all would change that, maybe just wishful thinking!!!

 

[coastymike]

Taxation Ruling TR 95/25 considers the deductibility of interest. Whether interest has been incurred in the course of producing assessable income generally depends on the use to which the borrowed funds have been put. The 'use' test, established in FC of T v. Munro (1926) 38 CLR 153, is the basic test for the deductibility of interest, and looks at the application of the borrowed funds as the main criterion.

In your case the funds will be used to purchase your PPOR and therefore the interest on the additional funds loaned, including the original loan amount, will not be deductible.