Join Australia's most dynamic and respected property investment community

finance / tax scenario

Discussion in 'Property Finance' started by Elives, 3rd Aug, 2015.

  1. Elives

    Elives Well-Known Member

    Joined:
    19th Jun, 2015
    Posts:
    536
    Location:
    Queensland
    i have 50k in my bank account and 1 ip.

    im looking for ip 2 and will most likely will have bought it within 3 months.

    i can put 50k into ip 1 to offset the interest (it's a redraw facility not offset account) will be 200 better off per month roughly. what are the pro's / cons of doing this?

    i'll save $600 by doing this.
     
  2. Jess Peletier

    Jess Peletier Mortgage Broker - Australia Wide Business Member

    Joined:
    18th Jun, 2015
    Posts:
    2,766
    Location:
    Perth WA
    As long as you have no non deductible interest to offset, it's all good.

    When you redraw you might like to split the loan to reflect the funds used for IP2, as it's classed as new borrowings, but other than that, all good.
     
  3. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

    Joined:
    18th Jun, 2015
    Posts:
    8,973
    Location:
    Sydney
    You will lose deductions going forward. If you do not have a PPOR it will cost you $50,000 x 5% = $2500 per year in lost deductions for the rest of your life potentially.
     
  4. Jess Peletier

    Jess Peletier Mortgage Broker - Australia Wide Business Member

    Joined:
    18th Jun, 2015
    Posts:
    2,766
    Location:
    Perth WA
    Have I missed something? If they redraw it to use as deposit for IP, it becomes fully deductible again. o_O
     
  5. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

    Joined:
    18th Jun, 2015
    Posts:
    8,973
    Location:
    Sydney
    Yes true but if a PPOR is bought at some stage you will have $50k tied up so this will cost you in lost tax deductions and higher non deductible interest.
     
  6. Jess Peletier

    Jess Peletier Mortgage Broker - Australia Wide Business Member

    Joined:
    18th Jun, 2015
    Posts:
    2,766
    Location:
    Perth WA
    True :) However I assumed it was a case of either spend cash on IP, or use redraw funds on IP. Either way it's going to be spent, rather than being an 'equity vs cash' scenario.
     
  7. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

    Joined:
    18th Jun, 2015
    Posts:
    8,973
    Location:
    Sydney
    Not necessarily - related party loan strategy could enable someone to have their cake and eat it too. But not possible for everyone.
     
    Jess Peletier likes this.
  8. Elives

    Elives Well-Known Member

    Joined:
    19th Jun, 2015
    Posts:
    536
    Location:
    Queensland
    i understand what your saying but in the scenario where i'm 100% using it to buy ip 2. does it matter? if in the future and i sold ip 2 i would then get the 50k less taxes back and could use this for ppor. (if sold for same price as bought)
     
  9. Elives

    Elives Well-Known Member

    Joined:
    19th Jun, 2015
    Posts:
    536
    Location:
    Queensland
    how do i split a loan and is it expensive / a hassle? and when i split a loan it of course would be with the same lender? could i use a different lender to do this?
     
  10. Jess Peletier

    Jess Peletier Mortgage Broker - Australia Wide Business Member

    Joined:
    18th Jun, 2015
    Posts:
    2,766
    Location:
    Perth WA
    Same lender :) Usually it's just a form. The cost will vary depending on lender - often it's free under package.
     
  11. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

    Joined:
    18th Jun, 2015
    Posts:
    8,973
    Location:
    Sydney
    It will matter if you wish to buy a PPOR and/or not sell the IP. If not then probably not.
     
  12. Blacky

    Blacky Well-Known Member

    Joined:
    25th Jun, 2015
    Posts:
    1,104
    Location:
    Bali
    good reason why you should have an offset account rather than re-draw facility. Its been costing you about 4% while it has been sitting in your bank account.

    Do you have any additional equity in IP1 you could draw before using the cash as a deposit?
    If not might be one of those cases where using cash security could work out well in the long run?

    All depends on your financial and tax situation. Seek professional advice - rather than listening to some numpty (eg. me) on the interweb. :rolleyes: