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Loan Splits

Discussion in 'Accounting & Tax' started by melbournian, 22nd Sep, 2015.

  1. melbournian

    melbournian Well-Known Member

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    wanted to see if anyone had experience doing this loan splits

    For e.g i have a property (now a PPOR) with $400000 owing home loan but also an offset with $400,000. If i decide to split the loan $200,000 equally each and use one set of the that $200,000 to put a deposit to form part of the purchasing IP (as in withdraw), would that $200,000 be tax deductible being the current purpose of the original loan is used for the PPOR?
     
  2. Peter_Tersteeg

    Peter_Tersteeg Finance broker and strategist Business Member

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    You'd need to actually pay off the $200k investment split (from the offset account). You can then draw back on that loan purely for investment purposes.

    You can't simply split the loan, take money from an offset account and call it tax deductible. The loan needs to be paid in full first.
     
  3. melbournian

    melbournian Well-Known Member

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    thanks peter, yup so split 200K equally, pay off one set of 200k into the home loan and then take the funds on withdraw
     
  4. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Borrow to invest - see my tax tips.
     
  5. Tranquilo

    Tranquilo Well-Known Member Premium Member

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    You would pay the 200 and then take a new loan back (separate split). So you have a new loan, new account number. My understanding is never use redraw as you may turn your ppor to an IP one day.
     
  6. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Using redraw is fine when you are paying off the whole split in full.

    Ideally though the op would not pay down the loan, but to borrow on top under a new split as this would maximise deductions if the PPOR ever became an IP. but this may not be possible if there is no equity. In this case he has a choice of splitting the loan, paying down one of the splits and using redraw, or using cash. Paying down the loan would be better in this case I think.
     
  7. Jess Peletier

    Jess Peletier Mortgage Broker - Australia Wide Business Member

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    If your loan is with CBA, be aware that if you pay off a split in full the loan will automatically close. Best to convert to a LOC first. Same with ANZ, but you have till the end of the month before it closes.
     
  8. Peter_Tersteeg

    Peter_Tersteeg Finance broker and strategist Business Member

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    Always ideal to draw on other equity for a variety of reasons, but it's not always so simple in practice. Accessing equity could take 3-4 weeks, splitting the loan can be done in a day or two. Could be difficult to meet servicing criteria to access equity, splitting doesn't require any reassessment.
     
  9. melbournian

    melbournian Well-Known Member

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    i presume then it would be the same with bankwest being they're with CBA. don't quite fully understand this - pay off the loan in full being everything into withdraw for that 2nd split? it will automatically close.
     
  10. Tranquilo

    Tranquilo Well-Known Member Premium Member

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  11. melbournian

    melbournian Well-Known Member

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    anyway after some enquiries and phone calls to bankwest and the ATO. the conclusion is the after splitting the loan Bankwest has a minimum $30 required to be owing to avoid the loan to be closed automatically and it is within their product disclosure statement

    Also ATO is ok with the split of loan 1 (200k) against offset and loan 2 (200k) having a total of $199,970 in the withdraw as a sort of line of credit. The interest on that $30 is not deductible till the acquisition of a investment property however in a larger scale of things it would not matter. The only letdown is the split would take 2-3 weeks (which i thought would take a couple of days) due to processing etc (no fees too) and they were even willing to take 0.4% off the home loan 2 (well that is what they said)
     
  12. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Don't confuse what someone told you on the phone with the ATO's opinion. You cannot rely on their answer and it is often wrong such as it is in this case.

    But interest on $30 is insignificant and not worth worrying about.
     
  13. melbournian

    melbournian Well-Known Member

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    Thanks terry - which aspect of my statement is wrong from your experience? Just trying to learn more abt this split loan

    i did get reference number based on my circumstance however I also have written in to get a private ruling.

    I have done this in the past with the Ato whereby 6 years ago when I was unclear abt something
     
  14. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    The $30 won't be used for investment purpose - but $30 in $200,000 is 0.015% so not worth worrying about.
     
  15. melbournian

    melbournian Well-Known Member

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    Ah ok thanks terry - i remember you now from those sommersoft days going back 6+ years when we discussed about the PPOR minimum stay for CGT exemption.