Borrowing before turning PPR into investment

Discussion in 'Accounting & Tax' started by mojorising, 1st Mar, 2017.

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  1. mojorising

    mojorising Well-Known Member

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    I have a home I bought for cash.

    I was thinking of buying another house and then turning the first house into an investment property.

    I would like to borrow against the investment property (i.e. the house I currently own but which will become the investment property) and then use that money to buy the second house which will become my PPR.

    Can I take out a loan against my existing property now while it is still my PPR and then treat it as an investment loan after I move to a new PPR?

    Just wondering if there are tax issues around the loan not having been established at the time of purchase?
     
  2. Peter_Tersteeg

    Peter_Tersteeg Mortgage Broker Business Member

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    The problem is you're not borrowing the money for the purposes of an IP, you're borrowing the money in order to buy a PPOR. The loan wouldn't be tax deductible.

    It's not the nature security property which determines the deductibility of the loan, it's what you use the money for. Using the money to buy a new PPOR is generally not a deductible purpose.
     
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  3. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    Yes you can, but the interest will not be deductible.
     
  4. mojorising

    mojorising Well-Known Member

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    Thanks for the reply Peter.

    Just wondering also would that argument also mean that a loan established at the time of purchase would also not be tax deductible after turning the PPOR into an investment?

    i.e. the money was borrowed to buy the property as a PPOR (not as an investment). The property was then rented out but the initial purpose of the loan was to buy the property as a PPOR so the loan is not tax deductible even after the property becomes an investment?
     
  5. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    If the loan was used to buy a residence and that residence is rented out the interest on that loan could be deductible when the property is available for rent.
     
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  6. mojorising

    mojorising Well-Known Member

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    Thanks Terry.

    Yes fair enough I see how it works.
     

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