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Changing PPOR to IP - Tax deduction

Discussion in 'Accounting & Tax' started by dreamoz, 26th May, 2016.

  1. dreamoz

    dreamoz Member

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    Hi All,

    I am a new member of PC. I have been reading PC for a couple of weeks now and it has been great source of information for us. Hubby and I are moving out from our current PPOR to our new PPOR soon. We are planning to convert our current PPOR to IP. I understand this issue has been discussed a couple of times in the forum. However, I have one question: Can we claim deductions (e.g. interest, etc) for our current PPOR on the day of the settlement of our next PPOR, although technically we will move in to our next PPOR ten days after the settlement? The reason why we do not move immediately is due to renovation works needed to be done.

    Thanks all!
     
  2. Paul@PFI

    Paul@PFI Tax Accounting + SMSF Business Member

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    The interest and other deductions would commence after the renovations when the property is ready and available to rent. I dont consider the interest deduction principles in the Steele's decision would apply in your instance.

    The renovation costs will not be deductible and are capital expenditure. It might be sensible to seek a QS report that includes this cost to max deductions.

    Also ensure you seek an agent opinion on the market value of the former PPOR as its value on the date it first earns income will become its costbase for CGT in the future. A formal valuation is not required but if you have a managing agent get them to commit a opinion to writing (higher the better)
     
  3. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    No. Only once you are genuinely looking for tenants can you start claiming interest etc.

    You can also only claim interest on the original loan used to purchase the current PPOR. Any increases you have made or any redraws that related to private purposes won't be claimable - the interest on these I mean.
     
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  4. Jess Peletier

    Jess Peletier Mortgage Broker - Australia Wide Business Member

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    Hi Dreamoz, you may find it worthwhile to get your loans reviewed to be sure they're set up so the accountant can easily work it all out, and that it's all claimable - as Terry said, many people draw in and out of their home loan which makes it difficult to claim deductions when it turns into an IP.
     
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  5. dreamoz

    dreamoz Member

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    Thanks Terry for your reply!

    We actually just appointed PM recently and he is actively advertising our former PPOR. The settlement day of our next PPOR is still a couple weeks away from now.

    Regarding to our loan structure. We were lucky to meet with a good broker as our loan on the former PPOR was set up IO initially and we put all our saving in the offset of the former PPOR loan.
     
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  6. Jess Peletier

    Jess Peletier Mortgage Broker - Australia Wide Business Member

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    Excellent! :D
     
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  7. dreamoz

    dreamoz Member

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    Thanks Paul!

    We will only do the renovation for our next PPOR. So I think the renovation cost will not be tax deductible.
     
  8. MikeLivingTheDream

    MikeLivingTheDream BCOM MCOM MTAX CPA CTA Registered Tax Agent

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    also consider getting a depreciation schedule done for the property as could be some substantial tax deductions there.
     
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  9. dreamoz

    dreamoz Member

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    Thanks Mike, we did this already :)