Turning my PPR into an IP

We were bulding an IP using a big builder when we got an estimate of our Principal residence and decided to sell it, which we have. ($140k profit over 2 yrs!!)
We are going to move into the Investment property and then build a new Principal Place of residence.

We will only have a loan for the IP (which will become our PPR) of about $35K when we move in, but will need to borrow to build the new PPR.

Question:
Can we borrow the money to build the PPR then move into it and move the debt into a Interest only loan against the IP (up to the value of the original IP) to claim the interest generated against the loan against the income. I know there is lots more to the tax side of the IP that you can claim, but am just interested in how the ATO will see this debt movement.

If you dont understand what I mean please ask a question so i can clarfiy it as I would really like to get some answers please.

I personally cant see a problem and the bank has told me they can to the loans that way, but will the ATO have issues with this?


Cheers and Thanks
 
No, you cannot move debt like that and still maintain max debt against the IP......because the only purpose for doing so is to get you a tax benefit - therefore disallowed by ATO
 
No, you cannot move debt like that and still maintain max debt against the IP......because the only purpose for doing so is to get you a tax benefit - therefore disallowed by ATO

So what will they let me do? Have no debt against it at all?

it is just like i am buying it from myself isn't it? I can show the value of the property from aquisiton, thats all the debt i wish to put against it.
 
Or can i keep a debt against the property, put the proceeds of the sale of this house into a separate account, then use that money to pay for the new PPOR?
 
I'm sure there are thousands of ppl who move out of there property in to a new house then rent out there old property as an IP.

How do they arrange there debt?

If they borrow against there orignal PPOR to purchase there new PPOR and move debt back against the old property thats the only way to get an advantage tax wise no?
 
I'm sure there are thousands of ppl who move out of there property in to a new house then rent out there old property as an IP.
How do they arrange there debt?
Yes there are and if you read all the threads in here about their situation, they all get caught with a PPOR almost paid off and virtually no tax benefits once made into an IP and then maximum non-ded. debt on the new PPOR.

Advice often is to sell PPOR to a trust or the other partner and pay stamp duty etc - just a big mess.

Glad you are asking the questions now so you don't end up the same :)

If they borrow against there orignal PPOR to purchase there new PPOR and move debt back against the old property thats the only way to get an advantage tax wise no?
Correct - NO.
As already explained. Ask an Accountant if you don't believe us.......Ask an Accountant anyway.
 
Yes the ATO will have an issue with this. They will look at the purpose of the money. If the purpose was to build a house that is not an investment property then the interest and costs associated with this loan are non-deductible debt.
 
I'm sure there are thousands of ppl who move out of there property in to a new house then rent out there old property as an IP.

How do they arrange there debt?
A good portion of them stuff it up and lose tax deductibility through lack of education, unfortunately. :eek: Plenty of examples right here on the forum. :(
Legs said:
If they borrow against there orignal PPOR to purchase there new PPOR and move debt back against the old property thats the only way to get an advantage tax wise no?
No, you can't get a tax advantage doing this. As others have rightly said, it doesn't matter which property the debt is secured against, it's the purpose of the loan proceeds which matters. If you take out a loan to build a new PPOR, it doesn't matter what it's secured against - it's not deductible.

This is why you need to educate yourself before you pay down your PPOR debt, because once you're planning on upgrading, it's too late.

Please tell us you didn't use the profits from selling your PPOR to pay down the IP debt? :eek:
 
A good portion of them stuff it up and lose tax deductibility through lack of education, unfortunately. :eek: Plenty of examples right here on the forum. :(

No, you can't get a tax advantage doing this. As others have rightly said, it doesn't matter which property the debt is secured against, it's the purpose of the loan proceeds which matters. If you take out a loan to build a new PPOR, it doesn't matter what it's secured against - it's not deductible.

This is why you need to educate yourself before you pay down your PPOR debt, because once you're planning on upgrading, it's too late.

Please tell us you didn't use the profits from selling your PPOR to pay down the IP debt? :eek:

Ok here we go:
We will be moving into the IP until we have built the next PPOR. The IP (which we will be living in) can be arranged to be with a loan which is the total cost of this property i.e. we can put profits of PPOR into another cash account and use this money to build the next PPOR while living in the IP. Question 1: Will the ATO care that we have lived in the IP until the next PPOR is built??

Then when we move into the PPOR the IP which we will tenant out will have a loan against it of its total cost.
Q2: Will the ATO like this? Is this acceptable in their eyes?

Thanks for your help.
 
Question 1: Will the ATO care that we have lived in the IP until the next PPOR is built??
It will be fine with the ATO just don't claim any expenses, depreciation etc for the period you are living there.

Then when we move into the PPOR the IP which we will tenant out will have a loan against it of its total cost.
Q2: Is this acceptable in their eyes?
Yes - all fine.

You got it now :)
 
It will be fine with the ATO just don't claim any expenses, depreciation etc for the period you are living there.

Yes - all fine.

You got it now :)

Ok...what about this then... can i pay down the loan to say 10k than redraw on the loan to fund the new PPOR?? leaving the IP loan at where it was when we moved into it? would they be suss on that maybe?

Just trying to avoid paying interest on the IP whuile we are in it...cos it may be 12mths or so.
 
Ok...what about this then... can i pay down the loan to say 10k than redraw on the loan to fund the new PPOR?? leaving the IP loan at where it was when we moved into it? would they be suss on that maybe?
Just trying to avoid paying interest on the IP whuile we are in it...cos it may be 12mths or so.

NOOOOOOOOOOO, no redraws. The ATO sees that as reborrowing.

You can & must use an offset account. The money in the offset will reduce the loan interest. But when you use it (the money in the offset account) for your PPOR it is your own personal stash of cash.

OFFSET NOT REDRAW. ")
 
Yes there are and if you read all the threads in here about their situation, they all get caught with a PPOR almost paid off and virtually no tax benefits once made into an IP and then maximum non-ded. debt on the new PPOR.
Yup, we have a much smaller debt on the IP than PPoR because it was supposed to be the other way around originally. So we now have an IP with a small debt being paid P&I and we don't want or need. I have no idea what to do with it. Probably just let the rent gradually pay it down over the next couple of years. Its not even much use as security.
 
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