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Getting a LOC with your PPOR as security

Discussion in 'Accounting & Tax' started by Brad Goodwill, 15th Jun, 2016.

  1. Brad Goodwill

    Brad Goodwill Member

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    If I own a property with my partner and refinance this property to buy that person out, would the interest on the new line of credit be deemed tax deductible? The property in question is not an investment property, it is my PPOR. The reason I even ask this question is that this property is the security for an equity home loan and a line of credit which have been used to buy several investment properties. I do not have the cash to simply buy the person out, and if I were to sell this property, I would probably lose the investment properties as the the banks would likely call in the outstanding loans on the IP's.
    Does anybody have an answer on this one?
     
  2. See Change

    See Change Timing Lord Premium Member

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    I think ....

    If you're using the funds to pay the other person out . No

    If you were using the funds to refund existing Investment loans , it should be .

    Why are the banks likely to call in the other loans ? I'm not saying they never do , but it's very rare unless you give them reason to do so like non payment . The only situations I'm personally ware of occurred during financial downturns and with non standard residential loans ( commercial / construction ) though the MB's on this forum would have more experience with this .

    You need to talk to an expert about all of your specifics.

    Cliff
     
  3. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Cliff it right.

    Interest on loans used to purchase income producing assests can be deductible. In this siutation it is a private residence.

    If the PPOR is security for other loans these other loans will need to be renegotiated as the title holders are changing. Interest for the other loans may not change even if the borrower change as long as the owners of these properties remain the same.

    Seek specific tax advice before doing this as if you get it wrong it could cost you thousands per year for 10 to 30 years.
     
  4. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    That sounds like a challenge in itself

    why do you feel this would be the case ?

    ta

    rolf
     
  5. Brad Goodwill

    Brad Goodwill Member

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    I am concerned that the bank may call in the loans as the security for the other properties would no longer be owned by me if the PPOR was sold. I don't have an issue financially with the costs, but with APRA regulation and tighter serviceability calculations, I figured that it could be an issue for the bank. I was hoping that the fact that this property was tied to other properties, it could somehow be tax deductible, but after reading the comments, it doesn't seem that way.
     
  6. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    Did you use the cash from the LOCs for deposit and costs for the IPs,and the Ips have their ownloans or

    Are the Ips also secured to the PPOR?

    ta
    rolf
     
  7. Brad Goodwill

    Brad Goodwill Member

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    As
    Terry mentioned title change, but in this case, title and names on mortgage will stay as is and will be covered by a binding financial agreement as I have already ascertained that I will not qualify for all properties on a single income.
    Brad
     
  8. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    If the PPOR is securing other loans for other properties you would not be able to sell it without the bank releasing it as security first. But this doesn't mean you have to pay those loans down, you just need to change the security - if you (or the owners of those properties) have security.

    see
    Tax Tip 74: Selling a property that secures other loans Tax Tip 74: Selling a property that secures other loans
     
  9. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    So no change in legal ownership, but you are promising to give the property away - have you sought legal and tax advice on this?
     
  10. Brad Goodwill

    Brad Goodwill Member

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    Must be a misunderstanding. I am buying out my partner, this is why I need to refinance to get a new LOC. I will keep this property, and the properties that are secured by it. Luckily (for me) we have agreed to keep ownership and mortgages as is.
     
  11. thatbum

    thatbum Well-Known Member

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    Possibly not an issue, but I'm surprised that your partner would agree to this in a BFA. And I wonder if the BFA might have some issues down the line if someone decided to change their mind.

    Did you get proper family law assistance with the BFA?
     
  12. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    bump


    Brad Goodwill said:
    I am concerned that the bank may call in the loans as the security for the other properties would no longer be owned by me if the PPOR was sold..
    Did you use the cash from the LOCs for deposit and costs for the IPs,and the Ips have their ownloans or

    Are the Ips also secured to the PPOR?

    ta
    rolf
     
  13. Paul@PFI

    Paul@PFI Tax Accounting + SMSF Business Member

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    In family law settlements its essential to consider the character of the orders rather than payments made. ie Paying your ex partner $100K and also them relinquishing title doesnt mean you bought their share for $100K - You may have taken on a higher loan
     
  14. Brad Goodwill

    Brad Goodwill Member

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    This is still in progress at the moment. Letter of offer is with my lawyer being drafted up, but it is a mutual agreement we have both come to. Family Law hasn't been involved at this stage.
    Once her lawyer gets the letter, I suppose there may be some conflicting advice.
    We are separating on good terms - nobody has done anything wrong, and we both hope that these properties will one day go to our kids. She has a REALLY big problem with debt and this could actually be half the problem.
     
  15. Brad Goodwill

    Brad Goodwill Member

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    Hi Rolf, no properties are not cross-collaterised. I use the line of credit for ALL IP related expenses.
     
  16. Brad Goodwill

    Brad Goodwill Member

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    Hi Paul, I see the cost of $150K to buy her out is a win for me as I belive in fundamentals of property generally and this would mean adding an asset to my portfolio. Even if I sold a year or two down the track, I still believe it is good to hold on to this property as it is worth a fair amount.
     
  17. Brad Goodwill

    Brad Goodwill Member

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    Hi Rolf, It's a bit of a tangled web but all properties have their own mortgages. i do however use other properties for the deposit on the next. My PPOR has the most equity and so I am using that right now. I also believe it is the right property as i was fairly sure it wouldn't be tax deductible.
     
  18. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    k

    if the sole security for the IP loans on the mortgage loan contracts is ust the IP, most lenders will leave you alone when selling the PPOR.

    is there any equity in the Ips?

    ta
    rolf
     
  19. Brad Goodwill

    Brad Goodwill Member

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    Didn't want to see the PPOR as I will stay on in there and so will the kids every 2nd week. So will Zoe (my dog inset).
    I have spoken to my broker and I don't qualfy for all the loans I currently have. This was in response to me changing names on title and refinancing. Selling would be another thing, but as I mentioned, I would prefer not to pay more rent to stay in some crap place than I do on a mortgage staying in a great house in a great area.
     
  20. thatbum

    thatbum Well-Known Member

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    So you're hoping not to sell anything, and get a further line of credit to use to pay out the partner? And she would stay on as a person jointly liable for the loans?

    It doesn't seem like a great deal for your partner - but fair enough if she goes for it.