investment to PPOR to possibly investment

Hello

I've always been a PI loan guy as I like building equity....it's a way of forced savings for me (not as disciplined as many others here)

So I bought a property intending it to be a PPOR and was then sent overseas for work before settlement and so now its a IP (PI 80% fixed, 20% variable linked to offset).

I'm moving back into it in around 18 months and it will be my PPOR.

My intention is to pay off the variable component while I'm abroad. On return and it becoming my PPOR I'd withdraw equity and use that for investment purposes.

My question is, if I then moved again for work and the property once again became an IP is there any way to be in a position for the loan to be tax deductible? Noting I would of paid a few years PI as a PPOR.

I'm thinking one approach would be to refinance the loan when the time comes as an IP?

 

NO as there would be no loan if you paid it off.

Deductibility of interest depends on the use of funds borrowed.

Why not just use an offset account and not pay it down?

p.s. this question has come up about 5 times recently on here

 

I've read through and couldn't find a scenario that I understood to be similar.

I would only be paying and closing off the 20% amount. I'd still have the majority of the loan left.

What I'd like to know is how do I make that remainder of the loan tax deductible again.

I can see why I just couldn't refinance it into an IP loan?

 

You cannot just make a loan deductible again. Once you have borrowed you have used the money. If you have paid off the loan the interest on that loan can no longer be deductible.

However, if you redraw and buy an income producing asset the interest could then be deductible - against the income from that asset.

Refinancing doesn't change deductibility. But if you are thinking of pulled more money out you would be borrowing extra - so deductibility depends on what those funds are used for.

Have a read of my tax tips

 

ok thanks Terry I'll have a read.

 

download my free ebook - it has updated versions of my first 50 tax tips.

 

Correct me if I am wrong, but I think @Chris89012 is talking about having the remainder of the loan (ie the split NOT paid off) as tax-deductible. Which, presuming it is a split, shouldn't be a problem to be tax deductible - the amount of the loan not paid off would be tax deductible when it is being used as an investment property, correct?

Cheers,
Inertia.

 

That's what I had assumed - he talking about the redraw potential.

The remaining part of the loan could be deductible when the property becomes income producing - but it depends on if there was any redraw etc.

 

Depends what the redraw is used for...Buy a new IP and its deductible v's the new IP, buy a boat and its non-deductible. Use to buy a new home its non-deductible.

Should speak to Simon about a rule in PC that automatically posts a FAQ to any post containing the word "redraw". FAQ that explains that its the USE of the newly borrowed money and not what the loan security is that determined deductibility. And any loan that is refinanced will only be deductible up to the original $balance for the former loan purpose. Any increased refinance must meet a new test AND also may create a blended loan.

Can this FAQ be in twenty languages ?? English doesnt always work. It seems to generate a lot of confusion for something so simple.

 

This is how I see it -

• Currently an IP loan - deductible
• Moves in - 20% paid off, and if redrawn for income producing investment purposes, this split is deductible. Remaining loan not deductible due to being PPOR.
• Moves out again - remaining loan is deductible again as it's an IP.

 

Thanks all, yes Jess you are correct. Being new to the field I can't clearly convey what I mean!