First investment property tax offset for deposit

Discussion in 'Accounting & Tax' started by Osoda, 15th Jul, 2020.

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  1. Osoda

    Osoda Member

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    15th Jul, 2020
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    Melbourne
    Hi guys! A little background. We bought an off the plan townhouse that is now nearing to title. We currently have a $90k savings for the deposit which is parked in the redraw account of our PPOR.

    now just wondering for tax purposes, what is the best way to go about paying the deposit in a way that we can maximize our tax benefit.

    do we create a split loan of $90k against our ppor?(we have separate loan for land and construction atm) or
    Setup an equity loan?
    Or
    Can we just withdraw our $90k savings from our redraw?

    we have sent a lenthy email to our accountant and all we got in reply is ‘loan as u can claim interest on it’ without explaining it. as you can notice, we are quite new with this. Hope to get some good advice here. And if you have any recommendations for a good accountant with investment properties expertise in western area of Melbourne.

    thanks guys!
     
    Osoda, 15th Jul, 2020
    #1
  2. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    Im not a tax guy, but if u were my client I would suggest you split the 90 k off, and likely make it IO, after your tax adviser would agree. If you have the borrow cap and equity we would usually recommend u hold the 90 k as buffer , and draw the deposit from a fresh loan.

    The 90 k as redraw overall maybe deductible, as its a re borrowing for investment purposes, but youd be repaying the 90 k at the same proportional rate as the balance of the loan, thus reducing deductability. Over time that is a gift that keeps on giving and is actually reverse compounding.

    Please seek tax advice, which I see you are doing.

    If you have substantial PPOR debt, Id also suggest you look at an active debt recycling strategy to pay this off more quickly.

    ta

    rolf
     
    Rolf Latham, 15th Jul, 2020
    #2
  3. Paul@PAS

    Paul@PAS Tax, Accounting + SMSF + All things Property Tax Business Plus Member

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    For the $90K to be deductible one of the best ways is pay down the loan. Then create a new split and borrow the equity. Plan with your broker first since paying down $90K may mean only 80% is additional borrowing capacity perhaps
     
    Paul@PAS, 15th Jul, 2020
    #3
  4. Terry_w

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

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    split the loan and redraw it = new borrowings
     
    Terry_w, 15th Jul, 2020
    #4