Deductibility of PPOR redraw for purchasing IP

I have $1.5m monies in the redraw account on my PPOR.

If I redraw this money for the purpose of deposit and duty for new IPs, is this amount tax deductible?

One broker told me: no, it is not deductible as it is a redraw amount from my PPOR

Three brokers said: of course, it is deductible, as it is used to buy IPs whilst sending me the link below:
ATO Community

and citing below:
The deductibility of the extra interest depends on if the redrawn funds are used for income producing or private purposes.

If the funds are being used for investment purposes interest would be tax deductible. The purpose of the original loan does not determine the deductibility of the interest.

Who is right, who is wrong?

 

Why would a broker give tax advice ? = Hope they are a better broker than tax adviser. They are wrong.

Borrowed funds when used to buy a income producing property can be deductible. BUT using a redraw that way has a number of concerns. The existing loan may be best SPLIT so the old use and the new arent mixed. Then providing the new borrowing can be traced to the purchase it should pose no concern.

Also note that the issue may mean the property loans are crossed collateralised. Thats a question for your broker.

The nature of the LOAN SECURITY (ie home) doesnt have bearing on deductions. Welcome to the world of investing. Lesson 1 is you probably will need tax advice.

 

Can't be any clearer. Thanks Paul.

 

Why on earth would you get tax advice from a broker?

 

I nearly wrote I would only trust one broker for tax advice = Terry.

 

I honestly think that every mortgage broker is you, Terry. My naivete I guess.

Terry_wLawyer, Tax Adviser and Mortgage broker

 

Honestly, he created an inescapable impression that a mortgage broker should also be a tax adviser and a lawyer.

Don't know... his fault I guess.

 

You might also have a mixed loan if the balance wasn’t zero at the point of redraw

 

The balance is $100k, would that be a problem? $1.6m loan, and $1.5m cash in redraw.

 

You sure its a redraw and not an offset?

 

A rare breed of skills. Thats is based on his specific case. Generally seek advice from a proficient person in each area. I am OFTEN asked what are legal or licensed fianncial issues and tell people I cant help. That what a broker should do.

 

100% redraw, I don't have balls to hold $1.5m in an offset account.

 

Yes. Lets say in 6 months you win $100K on the GGs. You think oh..I will pay off my home loan. Nope. You will repay $100K off $1.6m so the deductible IP loan loses $93K of deductible debt. Splitting the existing loan is a brokers role and will leave TWO loans - One for new Ip $1.5m and the old $100K. Then the horsey win could pay off the non-deductible. Loads of posts on PC about blended loans.

 

I know it is not the best strategy, but say it I stick with one loan ($1.5m in redraw out of $1.6m loan), and just redraw money as I need to pay the down payment and stamp duty, say it for the first property: $400k.

I still can claim $400k - fully deductible, right?

Say it a year later, I want to buy another IP, and I redraw $500k, will that be fully deductible as well?

One thing I should clarify, I don't intend to be a serial investor, I just want to have two IPs perhaps, top, and not do anything stupid for seemingly something straightforward.

 

Are you ready for more answers you wont like?

Without specific information, no one will be able to give specific advice, but based on what you have said, it would be highly likely to be deemed a mixed purpose loan, and the interest may not be deemed to be deductible.

 

I heard about mixed purpose loan, but why it nullifies deductibility in full?

 

Not trying to argue with you, but this is my logic and my understanding based on several readings:
1. I am redrawing PPOR, not investment loan
2. As per ATO, a redraw is technically a new loan, so if I redraw, say it $400k to fund my IP purchase, then the redraw purpose is for investment, and it should be tax deductible (the $400k only)
3. then I am redrawing another $500k say it, it will be another loan (from ATO perspective), so I should be able get full deduction for the $500k, again it is for investment purpose.

So out of $1.5m monies I originally had in my PPOR redraw, I utilised $900k for IP purpose, so I should be able to get full deduction for that $900k.

Tell me what I am missing here?

I don't intend to claim a deduction on the whole $1.6m of my original loan- just the portion I redraw to fund my IP purchases.

 

Say you are paying pandi on the loan. How do you split and repayments between deductible and non deductible? Especially if you redraw over time for different purchases?

if you add some bleach to a bottle of orange juice, how do you prove the bit you pour someone is orange juice?

a couple of loan splits is likely cleaner. But talk to the right expert.

 

Yes it will be a mixed loan

 

No, but you might be able to claim a percentage of the interest.