LMI on PPOR

If using equity of 10% deposit from your PPOR to purchase a IP and you encure LMI on the entire amount of the loan for the PPOR, is that amount tax deductable? Say it being $10,000

 

Encure? I haven't heard that term in a financial sense, unless you mean 'incur'?

@Terry_w would be able to field this one as I'm not 100% sure. Generally speaking, it is the purpose of the loan that determines whether it's deductible, not what secures it. I'm unaware of the ruling for LMI on a PPoR to pull equity. The interest on the draw itself definitely would be provided it's used for an IP. My hunch is that the LMI is not but I could be wrong.

 

Ah yep sorry did mean incur.

 

You're crossing loans if by the sound of it - you will have one loan incurring LMI and covering the new property. Otherwise why so you need LMI over the existing ppor (unless this is going into LMI territory separately)

 

I concur with your incur.

Not a straight forward answer, see:

Tax Tip 33: Deductibility of LMI https://propertychat.com.au/community/threads/tax-tip-33-deductibility-of-lmi.3425/

Tax Tip 34: Deductibility of LMI on loan increases https://propertychat.com.au/communi...-deductibility-of-lmi-on-loan-increases.3456/

Tax Tip 35: Is LMI Deductible in These Situations? https://propertychat.com.au/community/threads/tax-tip-35-is-lmi-deductible-in-these-situations.3493/

 

In theory you'd think it would be deductible, but the way the banks do it means most likely only part will be.
Usually in my experience the bank will adjust the two loan splits and LMI will be split according to the split sizes. This can make it difficult to prove the deduction from a paper trail perspective.

 

The ATO are happy to accept that if the REFINANCE creates a borrowing expense then the use of the newly borrowed money creates the borrowing expense in many cases. In other cases where existing finance is being refinanced etc then apportioning may be required. Remember the issue is what you use the borrowed funds for NOT what loan security is used.

Some examples

A seeks equity release and applies to his existing lender for the equity which takes LVR to 81%. LMI $6,000. This borrowing expense relates to the new amount and how the equity release is used will be relevant.

B has existing finance with Wpac across two IPs and two loans. He seeks to refinance with ANZ and access additional equity. Borrowing costs incl LMI $6,000. This borrowing expense relates to three loans and must be apportioned. Based on value of each loan not 1/3rd each

In the example of A and B the $6,000 is not 100% deductible but may be deductible from the date of the loann across 60 months. In addition and existing borrowing exp that is undeducted becomes deductible. If A or B end these loans before the 5 years then the balance may become deductible.

 

Thank you for the replys, very helpful.
Terry one of those scenarios was pretty much spot on.
No not crossing loans.