Maintaining Debt Recycling when moving house?

Discussion in 'Accounting & Tax' started by Kemi, 7th Aug, 2020.

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  1. Kemi

    Kemi Member

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    I'm about to setup debt recycling to purchase shares, but just planning ahead to the future, how would I maintain debt recycling and the tax deductibility without selling shares if I move house in the future? (selling PPOR and buying a new one).
     
  2. Paul@PAS

    Paul@PAS Tax, Accounting + SMSF + All things Property Tax Business Plus Member

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    Thats an important consideration. The debt may need to have security substitution at that time and depending on the new acqusition timing and LVR it could be a issue. You might (??) be able to also refinance using margin lending but usually a strict approved product list applies. If there is suitable equity elsewhere it may be possibe to refinance and switch security.

    This issue impacts those who use a debt on any OTHER property to buy another property too. Tight LVRs can create a deck of cards to collapse. I recently assist a client with CGT calcs and they found that if they sold the property that two other loans secured aginst the property also would have to be paid down. Lender refused to consider anything else and they were tight on credit. They had to sell and pay down three loans and lost around half the equity they had hoped for.
     
  3. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    Substitution of Security.
    The security for a loan doesn't affect deductibility of interest, and you can keep the loan open but swap the security for it.

    Tax Tip 22: Security for a loan does not determine Deductibility of Interest Tax Tip 22: Security for a loan does not determine Deductibility of Interest
     
  4. Kemi

    Kemi Member

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    Thank you for the very helpful responses!
     
  5. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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  6. Kemi

    Kemi Member

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    Hi Terry,

    Thanks for the tips. Tax Tip 74 mentions settling on the new property before settling on the sale of the old one. This example uses a LOC - would this still be possible if just using an IO split on the PPOR?
     
  7. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    Yes
     
  8. Paul@PAS

    Paul@PAS Tax, Accounting + SMSF + All things Property Tax Business Plus Member

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    Possibly. Provided the loan advance settles the acquisition.