Claiming deposit amount and costs associated financed by amount from PPOR loan

Discussion in 'Accounting & Tax' started by veds, 28th Jan, 2022.

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  1. veds

    veds Active Member

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    We have been putting extra money (on top of required monthly repayments) directly into the PPOR loan account. We decided to purchase an investment property some years after at which point there was a decent amount available for redraw. Our intention was to utilise this money to pay for 20% of purchase price and costs of purchasing an investment property.

    As we only had chequebook for PPOR offset account (and not PPOR loan account), we decided to transfer $60,000 from PPOR loan account into PPOR offset account in July 2018 to be purchase ready. The reason for this transfer was purely because we were going to use a chequebook for the initial 10% deposit upon contract signing. After unsuccessfully attempting to purchase several investment properties over the following few months, we successfully signed the contracts and issued a cheque for $50,000 (10% deposit) 3 months later and this amount came from ($60,000 that was available in) PPOR offset account.

    A few days before settlement, we transferred the remaining amount of $10,000 from PPOR offset account back into PPOR loan account and on that same day we transferred $80,000 from PPOR loan account into our everyday account (used for salary and every day purchases). That full amount of $80,000 in everyday account (along with a few extra thousand that we had in everyday account) was used to pay for the remaining 10% plus all the purchase costs relating to settlement such as stamp duty, conveyancing, loan setup, valuation, etc.

    Given that amount of $130,000 ($50,000 + $80,000) was sitting on our PPOR loan account originally until July 2018 and our intention was to utilise this amount for investment purchase when we transferred money into PPOR offset account in July 2018 and then subsequently into everyday account a few months later, does this mean we can claim any interest incurred on $130,000 from PPOR loan from the settlement date (on investment property) onwards? Based on a number of threads I have read on this forum, that seems to be the case. Unless I’m missing something, or there are issues around timing of transfers, or anything else I might be unaware of.

    I would really appreciate any feedback on this.
     
  2. Terry_w

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

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    It seems you have triple mixed the loan, mixing it 3 separate times.

    You might be able to claim a very small portion of the interest in the $60,000 tho. You would need to work out the portions which won't be easy, and then should split the loan into 3 portions.

    Seek tax advice
     
  3. veds

    veds Active Member

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    Thank you so much for such a speedy reply.

    So, a few follow up questions:
    - Given that transfer to both offset account (60k) and to savings account (80k) were both made with an intention to purchase IP, how do they differ in tax eyes given that all of that money was sitting in PPOR loan account all along. The only reason why we transferred money into savings account was because we wanted the money for settlement to come out of it (instead of giving out PPOR loan account details to solicitor, bank, etc.).
    - You mention we might be able to claim small portion of interest on 60k. Does that mean "claim interest on entire 60k" so long as we work out the correct percentages/portions over time?
    - What is the need for splitting the loan into 3 portions if interest on 80k is not claimable. Wouldn't it be 2 portions, one that is remaining principal (including 80k that was taken out) and another one accounting for 60k relating to IP.

    Thank you again. I'm a fairly new member, long time reader, however first time posting a question.
     
  4. Terry_w

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

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    Intention doesn't matter - In the Domjan case it was also an accident.
    a small percentage of the interest on the money used for the investment may be arguably deductible.

    You should split it into 3 portions because there seems to be 3 uses, at least - the purchase of the main residence, investment use, and other. You would want to pay the other off asap
     
  5. veds

    veds Active Member

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    Ok, got it. I have just read up on that case and understand what you mean about 80k being mixed with private use money.

    I have just gone over statements from a few years ago:
    - Offset account balance was $0 before transferring money from loan to it.
    - We transferred $60,100 in July 2018 from loan to offset account (not $60,000 as originally thought).
    - We then utilised the offset chequebook 3 days later to deposit a $100 cheque from offset account into our everyday account. From memory, we did this to ensure that 9 year old chequebook was fine a few days before the auction we attended in July. This left a balance of $60,000 in offset account.
    - The rest is as already specified, the $50,000 was put down as a deposit 3 months later and the remaining $10,000 was transferred back onto loan account (and then transferred as a sum of $80,000 to everyday account).

    Does this $100 transfer make a difference in your opinion?
    If not, do you think we should claim interest on 60k (or should it be interest on 50k as the other 10k was transferred to loan and then to everyday account) as a deduction from 2018 onwards?
     
  6. Terry_w

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

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    This is something you should get personal tax advice on.
     
  7. veds

    veds Active Member

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    Ok, thank you very much for your time.
     
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