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Is this Legal?

Discussion in 'Accounting & Tax' started by aceinfo, 18th Feb, 2016.

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  1. aceinfo

    aceinfo Member

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    All,
    I have the following scenario that i wanted your advice on

    1. PPOR bought for say 500K
    2. Investment Property Bought for 250K

    Current Value - PPOR say 1,000,000
    Current Value - Investment Property say 500K

    Need to buy a 1.2 Mill worth new house to live in


    Can one draw equity out of their current to properties based on current market value, pay that as deposit to buy new house to live in with the aim to reduce bad debt.
    Get a loan for the remain part of the new house.

    Can one claim interest on the equity released from the old houses as deductions during tax return time as they are now deemed as investment properties. to reduce tax liability
     
  2. EN710

    EN710 Well-Known Member

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    I'd say no as the purpose of the equity release is not for investment.
     
  3. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Yes you can do that but you cannot claim the extra interest as use determines deductibility not security
     
    EN710 likes this.
  4. aceinfo

    aceinfo Member

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    thanks guys. Looks like i will have to think of other options
     
  5. Daniel Taborsky

    Daniel Taborsky Well-Known Member Premium Member

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    One option would be to sell your current PPOR, use the cash you receive from the sale as a deposit on a new PPOR and then leverage against the equity in the new PPOR to purchase a new investment property. This would maximise deductible debt as the investment property could be fully debt funded.
     
    Jess Peletier likes this.
  6. Greyghost

    Greyghost Well-Known Member

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    It does not matter what asset the funding is secured against, or what mix etc. What are the funds going to be used for. In this case a PPR, so no not deductible.

    Make sure you speak to your broker so to not contaminate the IP loan.
     
  7. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Perthguy likes this.
  8. aceinfo

    aceinfo Member

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    thanks guys.
     
  9. datto

    datto Well-Known Member

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    It's only illegal if you get caught.
     
    DaveM likes this.