Using loan money to pay another loan

[SupaRex]

Hi Everyone,

I did do a search, trying to find the answer to the following, but I couldn't find one (that could be my fault though).

Easiest to pose the question via an example:

I borrow $500k for an IP (IP2) that costs $450k (inc all costs). That leaves me with $50k just sitting there. It just so happens, that I already have another IP (IP1).

My question is this: Can I use the $50k from IP2 to pay the shortfall each month on IP1?

Does this violate "Hearts law" or "Hearts case" or whatever it's called (I googled it, but I couldn't find a description).

If I can't, can I use the $50k to pay other expenses for IP1?

In all the above, I'm looking to preserve tax deductibility. My main goal is to improve my cash-flow - not avoid tax.

Thanks for any feedback,

Brad

 

[RumpledElf]

The term you are looking for is "capitalising interest" or maybe "debt recycling" and there's heaps of threads about it.

 

[bene313]

Corsa started a thread, it's stickied in the Accounting/Tax forum. Also, it's "Hart's Case"

 

[Rolf Latham]

Corsa started a thread, it's stickied in the Accounting/Tax forum. Also, it's "Hart's Case"

Geeze Bene, dont perpetuate this myth any further.....................Harts Vs ATO has little to do capitalising of investment purpose interest.

ta
rolf

 

[Rob G.]

Whereabouts is this $50k "just sitting there" in the meantime ... until it is applied over time to pay your IP1 expenses ?

Cheers,

Rob

 

[bene313]

Perhaps Rolf however I was merely redirecting the OP from his googled results on heart disease to that of taxation law.