Moving PPOR to Investment & Redraw Tax Implications

Hi all,

Just a quick question. My PPOR is P&I currently and I have surplus funds in an offset account. If I move those funds to the loan with a redraw facility with the plan to redraw if I move this property to an investment in the future will this have future tax implications?

The reason is, I can save on lower repayments and improve cash flow vs having in an offset.

 

If the redraw is used for private reasons it will not be tax deductible. So paying down the loan can have adverse implications in terms of future flexibility.

Maybe just get the repayments to chew down the offset or borrow to make the repayments. Then the new borrowing can be refinanced later on.

Basically eliminating debt can be bad from a tax point of view. And debt and interest are not necessarily connected.

 

Thanks for your reply.

Is there any reason why you can't pay down the debt, and then redrawing those excess funds later on if I move to an investment? Eg. I have a loan of 200k, put 50k in the loan and redraw the loan back to 200k once I use an investment so the new interest repayments are calculated on 200k.

 

The redrawn funds are counted as new lending, so what you use those funds for matters. If they are used for personal use, the funds won't usually be deductible.

It's important to split the loan if you're planning to redraw funds for non-investment purposes so you don't end up with a mixed loan.

 

Just leave the money in the offset otherwise you will be 'shooting yourself in the foot' by paying down the loan

 

you can do this, but the interest will not be deductible because of s8-1ITAA97

 

But essentially once I redraw the money back from the loan, my new monthly interest charged will just be like it never happened? Eg. My yearly interest statements when doing the tax return will say "xyz" interest was charged.

It apparently just changes the ratio. Eg. with my 100% offset account, I'm paying down more principle but less interest. With having the money in the redraw account, I'm paying less principle down as well thus the total repayments each month are less.

 

Pauli

The interest deductibility follows where the borrowed funds went. The security of the property and the income producing nature of the security is irrelevant.

The general consensus from the forum is that doing what you propose is a bad idea. Leave it in the offset.

Look up Ure’s case for a detailed explanation.

 

You would be borrowing money by taking from redraw. Mixed purpose loan results plus interest not deductible.

Tax Tip 19: Avoid Using Redraw on an Owner Occupied Loan https://propertychat.com.au/community/threads/tax-tip-19-avoid-using-redraw-on-an-owner-occupied-loan.2898/

Tax Tip 67: Using Redraw Facilities on loans and Tax Issues Tax Tip 67: Using Redraw Facilities on loans and Tax Issues

Tax Tip 77: Redrawing Extra Repayments to Increase Deductions? Tax Tip 77: Redrawing Extra Repayments to Increase Deductions?

 

Suncorp. According to conversation with the bank, to bring the effective monthly repayments down I have to draw down the loan (eg. putting money into the loan) where I can redraw from. The offset account only changes the loan ratio of principle to interest.