Investment Properties, Loan splitting, tax deduction, Taxation Ruling 98/22

Hi all,

New to all this. In a nutshell if a split loan between a primary place of residence and an investment property was $10 total, the primary place of residence loan was $4 with an interest rate of 1% lower than normal and the investment property loan was $6 with an interest rate of 1% higher than normal, is that doable?

Not sure who the people with decent knowledge on this are. Have read TR 98/22 and it appears there are multiple private rulings approving of this set up. I'm curious if this is the normal way of setting up loans for investment properties.

Cheers.

 

There are a few loan products on the market where you have 2 loans with the one lender, structured like the example below:
Loan 1 - secured by the Primary Place of Residence (PPOR) - $500K rate is 2% p.a.
Loan 2 - secured by Investment Property - $500K rate is 6% p.a.
Rates and amounts used above are just for example purposes only.
Idea behind this structure is that the Interest on the Investment loan is deductible but the interest on the PPOR is not, therefore maximises deductibility on the Investment loan and can help pay off the PPOR loan faster.
No it is not the normal way to set up loans for investment properties by any means but yes it is possible to set it up this way. Is it best for you and your circumstances? Best you seek advice on that yourself.
As or the tax ruling 98/22 I'll leave that to the Tax specialists to discuss.

 

Cheers, which bank do I speak to to sort this out?

 

You will only finding lenders that offer lower interest rates like that on specific products. These lenders have product rulings from the ATO stating that the interest will be deductible and the anti-avoidance provisions won't be used. But it seems that the product ruling is in one particular name and the lender, or mortgage manager is in another name, so make sure the product ruling will apply to the lender that is offering it.

 

I guess the difference with these products and TR98/22 and the Hart's case is that the old products allowed for no repayments to be made on the deductible portion of the loan whereas these new ones all have a repayment requirement.

 

So in laymans terms, it can be done if you have ordinary loans paying down the principal and interest on both loans?

 

To clarify, typical structure is Interest Only on the Investment Loan, Principal & Interest on the PPOR loan