Using Excess money on an Investment Loan

Hi All

Just have a little example scenario here if anyone would like to go through it :)

If you have a $400,000 investment loan on an IP, of which $300,000 is for the actual house (so you refinanced to get extra out for personal, the personal extra you cannot claim ofcoarse), how do you work out what interest expense to claim as a deduction?

I understand it in simple terms (proportions) but what happens if you repay extra but that extra is (in your mind) towards your personal proportion. I guess at the end of the day its a scenario to avoid if you can??

Obviously you would be repaying extra just for the peronal "unclaimable" portion of the loan. I wonder if the tax deparmment would be so generous to accept your explanation :cool: or if they would say the loan is 1/4 personal and 3/4 investment so you have to work out the interest based on that ratio.

You cannot just repay the 'personal' proportion of the debt. The debt gets reduced as a total, with the personal and duductible debt apportioned accordingly.
Hi Brett

If you are looking at this as something you may want to do in the future, you would simply get a loan that allows "splits". This is were the lender divides the loan into two separate sub accounts, with separate account numbers and separate statements.

In this case, you'd have one sub account (split) with your $300K of tax deductible debt and the other split would contain your $100K on non deductible debt. This structure makes accounting for your deductible and non deductible debt a breeze.

Cheers, Paul
avoid this proportioning at all costs because the ato will keep the extra repayments in the proportions of the initial outlays. eg 300000 for investment and 100000 for personal means a 3 to 1 split so any extra repayments will be assumed to be repaying the extra in the same split this means that if you paid $400 extra then the ato sees that as a repayment of $300 towards the investment and only $100 towards the personal debt. Even though you actually want it all to go towards paying off the personal debt only. This would keep going in the same proportions for the life of the loan.
Hi Paul

I will look into splits with the loan as yes this is something I am looking at doing.

But yeah, I didnt really think there would be any way around it with the ATO and anything that could cause them to watch me, not that im doing anything wrong, wouldnt be worth the trouble.


PS - new to this forum and I think its great sharing and reciving advice !!