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Are there tax implications in moving this loan

Discussion in 'Accounting & Tax' started by Arcticfire, 24th Mar, 2016.

  1. Arcticfire

    Arcticfire Well-Known Member

    Joined:
    28th Jun, 2015
    Posts:
    71
    Location:
    Newcastle
    I have several loans attached to a block of apartments I have in Newcastle ( which I rent out )- the reason I have several loans is because we fixed 50% of the loan amount several years ago but this has gone back to variable rate

    This property is currently cross securitised with another investment property we have in Sydney

    I wish to un cross these loans and the equity has increased enough to allow this

    But because the block of units is not strata titled - the bank will not pay for the valuation as it is considered commercial - I can pay for a bank valuation but the quote is coming at $2500 from the banks one and only valuer here in Newcastle

    However another alternative ( as suggested by my broker ) is to move one of the loans from the Newcastle property ( thereby reducing the amount owed ) and attaching it to the Sydney property ( thereby increasing the amount owed on this property )

    The bank says they can do this and by doing this it will allow me to uncross these 2 properties and avoid the $2500 fee to value the Newcastle property

    However I am concerned that there maybe some taxation issues

    Will I be able to claim the full increased amount of interest im now paying on the Sydney property?

    Another possibly complicating matter is that the Newcastle property is in joint names ( myself and wife ) whereas the Sydney property is just in my name

    Any thoughts or suggestions would greatly be appreciated
     
  2. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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  3. Arcticfire

    Arcticfire Well-Known Member

    Joined:
    28th Jun, 2015
    Posts:
    71
    Location:
    Newcastle
    So i
    Thanks Terry

    Can you confirm if I understand this correctly

    By moving and securing the loan to the Sydney property

    This does not change the deductibility of the loan and the interest generated will be still be deductible but attributed to the Newcastle property and not the Sydney property.

    Eg
    Newcastle property has 2 X $500000 loans which I currently claim interest as a tax deduction

    Sydney property has 1 X $500000 loan which I claim interest as a tax deduction

    I move one of the loans from the Newcastle property and secure it with the Sydney property which will now have 2 X 500000 loans secured by it

    I will still claim the deduction for the interest paid on 1 million dollars for the Newcastle property

    And the Sydney property will still only get a deduction on the interest paid on $500 K despite the fact that there is now $1 mil secured on this property

    Did I understand this correctly ?
     
  4. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Location:
    Sydney
    security doesn't change deductibility.
     
  5. Peter_Tersteeg

    Peter_Tersteeg Finance broker and strategist Business Member

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    Location:
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    All you're doing is changing the security to the loan. You're not changing what the money was used for. Therefore the deductibility should remain as it was.
     
  6. Arcticfire

    Arcticfire Well-Known Member

    Joined:
    28th Jun, 2015
    Posts:
    71
    Location:
    Newcastle
    Thanks for the help guys - it has clarified the situation for me