Fix Contaminated / Mixed Use Home Loan

Hello. long time lurker, first time poster.

I have just been reading PC and SS for the last couple of months. I have tried searching PC and SS but could not find an anwser to my current situation..

How do you fix a contaminated home loan?

I have redrew roughly a total of $150k for personal expenses over 4 years on my $500k PPOR loan.. i intend to convert it to my first ever IP next year, if everything goes to plan.. now i knew why offset is important.. i thought they were just the same..

If you are paying $16k per year for interest, how much would you get back in tax deductions.. if it is joint ownership 50/50, one marginal tax rate of 32.5% and another 37% - is it $5.2k (32.5%) and $6k (37%) owner per year??

how much would an accountant charge for this??

do I need to buy the Loan Apportionment Calculator at Bantacs and then give it to a tax advisor? so that it would be more easier for him??

or just present the 4 years PPOR home loan statements and 4 years PPOR interest payment schedule to tax accountant?

or

it does not matter for now as it is still a PPOR??

Thanks heaps

bpang

 

You can't fix it.

When you rent it out, you could set up a line of credit and start borrowing for some of the expenses, rates agent fees, repairs etc and slowly make the Loan bigger.

Search debt recycling.

 

Hi,

You can fix it by getting splits in the loan. Talk to an accountant now to work out the personal use portion of the loan and spit it into it's own loan. That will protect the future deductibility of the rest of the loan. This is important to do as although you know you've removed the $150k, calculations change if it was a lump redraw or many little redraws and there has also been interest along the way so they would need to work out the exact amount for the split.

We ran into this issue early on and had several people say," you can't fix it" including a couple of accountants. What ********! Cost us a lot of money. Do it now so you can start paying it down as it will never be deductible debt.

 

You just have to work out the splits on a reasonable basis and tell the accountant the relevant amounts. I imagine not many would be willing to go through statements.

You are probably best off buying the bantacs calculator and giving it a shot. From memory it is only about $30

 

And check out
Tax Tip 44: How to Un-Mix a Mixed Loan Tax Tip 44: How to Un-Mix a Mixed Loan

 

Thank you Tobe, Kassy and Terry_W..

I am going to purchase the bantacs calculator and going to give it a shot.

I have also read the Tax Tip 44 and Tax Tip 45..

I am with westpac, do you guys think they do split on the phone without refinance on my PPOR? I cant refinance at the moment as I am still 90%LVR..

 

Westpac were one of the best out there for splitting existing loans. Last one I split with them was about 6 months ago though.

 

To go through the statements when you have mixed many loans takes a lot of effort. And presenting it in such a way that can withstand an ATO review is also involved. Many properties are sold and mortgages refinanced and the ability to trace is complex.

Ask you tax advisor for help and get them to present it in a way that will allow you to present it to the ATO later on - this document will protect your tax deductibility and is a worthwhile instrument.

The loan matter can be corrected once the facts are clear with good instruction to a enlightened broker.

 

I have a loan apportionment schedule you may want to play with. Just treat all ins and outs within a months as if the occurred on the final day of the month. This is consistent with the ATO ruling. Important that repayments and interest fees etc get allocated in same % too.

It should help address the % splits. It expensive if you want it done for you !!

 

Thank you guys this is awesome.. @ terry i will ring westpac after i get to find how much needs to apportioned.. @Ross Forrester thank you for the informative comment.. @Paul@PFI , i have downloaded the excel, and will play with it on the weekend...