I'm new to the forum and I have a question. I'm unable to see my accountant for a fortnight as he is away so I thought I would seek some ideas in the meantime. My PPOR is valued at 500k. It has nothing owing. I have 200k in available redraw. I wish to purchase a property in a location which I plan to move to in the next 24 months. For the 24 month period it would be an investment and I will remain in the aforementioned PPOR. After moving into the new property in 24 months it will become my PPOR for decades likely and the previous PPOR will become an investment property. In hindsight I have made the rookie mistake of not having an offset account on the PPOR loan but I have won many other battles and the war is not over. I have never redrawn on the PPOR loan. I have read TR 2000/2 - Income tax: deductibility of interest on moneys drawn down under line of credit facilities and redraw facilities (As at 1 March 2000) for some guidance. However, my questions are: 1. If I use the 200k of PPOR redraw for a deposit on the new place, I would be able to claim the interest on that 200k for the 24 month period which it was an investment and tenanted? 2. When I move to the new place and then tenant the previous PPOR I assume I would then not be able to claim any interest on that 200k which was redrawn as it would no longer be serving its original purpose? 3. If however, before I purchased the new place I redrew 200k, refinanced the loan into a loan with offset facility and had the 200k in offset...could I then use the 200k in offset as a deposit for the new place. And then when the previous PPOR is an investment, the 200k loan (now with nothing in offset) would be deductible? Appreciate any thoughts
Welcome. Yes. You could also use the LOC for some other purchase expenses (stamp duty etc) and the interest would be deductible during the time it was an investment. Correct. The loan would now have been used to purchase a PPOR and hence the loan interest is not deductible. Nope. The purpose of the $200k would still be to buy the new place (future PPOR). The only way to make the funds deductible on your current place would be to do a spousal sale, or sale to a trust. Or to sell the current place, and buy another IP later. All of which will incur significant costs (stamp duty etc). Alternatively look into debt recycling - although that might be tough from where you are starting. Regards, Jason
1. Yes 2. The purpose of the loan will not have changed, but the use of the property will change when you move in. If the loan interest relates to personal use it won’t be deductible 3. You will have borrowed to park in an offset. If you then use the funds for a private expense the interest will not be deductible. Consider a related party sale of the existing PPOR. If NSW you could sell 50% to a spouse without stamp duty but only while living in it. It will probably be CGT free too. The spouse could borrow to acquire this 50%. Of you could sell to a related trustee of a trust – a fixed unit trust perhaps. Stamp duty would be payable but the trust could be structures so that you own the units and you can claim the full interest on the loan while the borrowed funds are used to pay down the new PPOR. Land tax threshold possible too if NSW.
