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Need advice to structure my home loan to buy investment property

Discussion in 'Accounting & Tax' started by e96anban, 27th Aug, 2015.

  1. e96anban

    e96anban Member

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    I am looking to utilise capital from my PPOR home loan to purchase an investment property and could use a bit of advice.

    My home loan is 420k and is split into 2 portions (Acc1: 300k + Acc2: 120k). Both of them are on interest only with ability to redraw the funds.

    I have fully repaid the Acc2 and have $0 interest on the account at the moment.

    I am planning to utilise the $120k funds from Acc2 to pay for the deposit and costs to purchase an investment property. I will than take a separate investment loan from a different bank for the IP.

    Is this structure acceptable? Would I be able to claim tax deduction on interest charged on my Acc2 once I use them to pay deposit to purchase my investment property?

    Thanks in advanced for your feedback.
     
  2. Jamie Moore

    Jamie Moore MORTGAGE BROKER - AUSTRALIA WIDE Business Member

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    Since account 2 is paid off - it sounds fine. Check with an accountant though.

    Cheers

    Jamie
     
  3. Peter_Tersteeg

    Peter_Tersteeg Finance broker and strategist Business Member

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    If you're only using the funds from Acc2 for tax deductible purposes, you'll be able to claim the interest on it moving forwards.

    Just be aware that ANZ often automatically closes home loan accounts that have been fully paid. Make sure the funds are still there and available to you before you do anything.
     
  4. Jess Peletier

    Jess Peletier Mortgage Broker - Australia Wide Business Member

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    CBA too. With ANZ they'll close it at the end of the month, with CBA pretty much instantly.
     
  5. e96anban

    e96anban Member

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    Hi thanks a lot for your feedback.

    Yes I intend to utilize that Acc 2 fully and purely for the purchase of my investment property.

    On top of that I intend to take an new investment loan around 90% with offset facility for the IP. I believe I might end up with some excess funds from the whole exercise. I intend to place that excess cash into the offset account of investment loan to be used for the usual rental income and outgoings (interest payment to both loan accounts etc etc).

    Any issues or is it all good in terms of loan structuring?
     
  6. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    See my tax tips on capitalising interest and parking borrowed money in offset accounts.

    Otherwise all sounds good.
     
  7. Jess Peletier

    Jess Peletier Mortgage Broker - Australia Wide Business Member

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    You'll be better off keeping the borrowed funds separate from any other funds - if rental income goes into the account it can get messy.
     
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  8. e96anban

    e96anban Member

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    Hi Jess could you elaborate pls?
    - Where should i keep the excess cash from the borrowed fund
    - why should i not mix rental income in the similar account where i keep the excess cash (in this case the offset account)?
     
  9. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Good point Jess

    Even depositing rent in an offset containing nothing but borrowed money will contaminate the loan. If the offset contains the borrowed money only you can trace it back to the borrowings so the interest will PROBABLY be deductible (see tax tip 1). But as soon as you mix non borrowed money in an offset containing only borrowed money it will be contaminated and AT BEST you will have to apportion the interest. Doesn't matter what the source of the money is.

    My advice is not to borrow and park money in an offset.
     
  10. e96anban

    e96anban Member

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    Thanks Jess and Terry...just read the Tax Tip 1. I could have caused a major mess by parking the fund in the offset account!
    Will do as suggested and move any excess funds into interest only redraw loan.
     
    Terry_w likes this.
  11. Jess Peletier

    Jess Peletier Mortgage Broker - Australia Wide Business Member

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    I would either keep it in the loan account if you can transact out of it directly, or in an offset that doesn't have any other funds in it. If you can have 2 separate offsets that's ideal as you can keep borrowed funds and cash separate.