Can a split loan be tax deductible?

Hi,

Can anyone confirm that a split loan can be tax deductible if it is used for investing into shares? My reading says yes, but would like to confirm

I've been advised to pay down my PPOR to create equity. My broker has said he can set up a split loan.

Scenario:
1) Pay down 55k of my debt against the PPOR loan to create equity
2) Request an investment loan for 55k from my mortgage broker

Current:
PPOR value: 400k
Outstanding PPOR loan: 300k
Available cash: 100k

After reducing my non tax deductible debt to create equity:
PPOR value: 400k
Outstanding PPOR loan: 250k (300k - 50k)
Available cash: 50k (100k - 50k)

Creating a split loan
PPOR value: 400k
Outstanding PPOR loan: 250k
Split loan: 50k (Can a split loan be tax deductible if it was invested into shares?)
Available cash: 50k

Thanks everyone

 

It potentially could be, but don't do what you suggest. Split the loan first then pay it down and then redraw to invest in income producing assets.

Then it could work.

But get tax advice

 

Thanks for the help Terry_w.

If I split the loan, then pay it down, wouldn't the loan disappear and become fulfilled?

 

Don't pay it all down

 

As in, leave $1 in it? then redraw?

Also, if anyone can recommend a tax accountant in ACT, it would be appreciated.

 

You just have to make sure it won't close the loan.

 

Thanks Terry_w

 

The deductibility of the loan interest relates to :
1. Use of the borrowed money directly used to acquire shares / etf
2. That are INCOME producing.

If the shares or ETFs acquired havent previously paid a dividend / distribution then the deductibility may be limited to being a element of the CGT costbase and only deductible against the net gain, when sold.

 

Thanks Paul. Right, incoming producing, ie with dividends.

@Terry_w, could you explain why I should split first and then pay down the amount? I've been looking at The Ultimate Guide to Debt Recycling (Updated: 2020) - Strong Money Australia and it appears to say, pay down the amount to create equity and then split.

I'm obviously missing something here :/

 

Example

I have a loan of $100K that has two elements. One is I bought a boat for $50K and the other is shares $50K. I have $50k in my offset.

If I didnt split first then the $50K would reduce BOTH elements equally. ie $25K deductible (shares) and $25K non-deductible (boat) and a new split of $50K available.
By splitting first I repay the boat $50K. It leaves the $50k for shares intact. And a new $50K available

Its like a milkshake. You cant mix syrup and milk then drain only the milk.

 

I think I understand your point. however, In my scenario it's slightly different. I think I attempt to create equity artificially instead of through natural growth of ppor. (FYI, it's an apartment so not much growth atm)

I have a PPOR worth 400k. I only have one loan (the mortgage loan) of 300k.

I've been advised to pay down the loan so that the one loan (mortgage loan) would be only 250k. 400k PPOR worth, 50k equity, 250k outstanding loan.

I think your information comes afterwards. In the next step where I create the split (50k investment loan, 250k mortgage). I pay down the 50k and then reborrow that 50k for investment.

 

You need advice if you dont know

 

If you split after redrawing you would have a mixed loan and would need to refinance to unmix it.

Best to take advice from someone licensed and qualified rather than rely on an article on the net.

 

Thanks guys, i definitely need advice.

Does either of you provide one off paid advice? If so, pm me.

 

Hi Terry, unsure if this is in a different context but say for a situation where Homer had a PPOR loan balance of $300k and 50k in a redraw facility. If he wanted to invest the 50k in shares, wouldn't he first redraw the 50k and because he already knows what the loan portions are, split the now $350k loan into 300k and 50k splits. Pay the 50k split back then redraw for the shares.
I was reading your post 'how to unmix a mixed loan' and thought the same steps would apply here. Cheers

 

Yes thats generally how it would work if the loan had already been paid down.