Non deductible home loan shifting. Is it possible???

Hi,

I have 2 loans attach to my ppor; $200k and $50k with $40k in the offset account.

This is what I am thinking

1. Get bank to split the $200k loan into $160k, $20k and $20k
2. Setup offset account for the two $20k loans
3. Transfer the $40k in the offset account into the 2 new offset accounts
4. Use the new offset accounts to pay the investment bills; Council rate, water bills, insurance and investment related cost (maintenance, HWS, etc...)
5. Claim interest from the $20k loan against investment income.
6. Once the fund in the offset account is used up, repeat step 1 to 6 again.

Please advise if my logic is possible or not.

Thanks

 

No, that won't work.
It's what the loan proceeds were used for that dictates deductibility. The offsets are not relevant.

You would be better off paying down 20k of the 200k loan and asking bank for a separate 20k line of credit. If you use the line of credit to pay investment bills then the interest on the LOC ought to be deductible. You should verify this with your accountant before proceeding.

 

Offsets are savings account, so there would be no expense associated with them to claim. They will effect the interest on the loan, but the loan relates to the purchase of a PPOR.

Look at debt recycling instead. Pay off bad debt and reborrow it to invest.

Tax Tip 2: Debt Recycling Tax Tip 2: Debt Recycling

Tax Tip 4: Borrowing to Pay investment expenses Tax Tip 4: Borrowing to Pay investment expenses

 

You're headed in the right direction. You could get the PPOR loan split into the $20k splits, repay them with offset funds, then redraw for investment purposes. Depending which lender your with will determine whether a line of credit is needed or a normal term loan is okay.

 

Trying to digest this...

Say if I was to take out 2 loans using equity from the ppor and the loans are for paying the investment bills. Then the interest is tax deductible.

Is this correct?

 

I have answered this in Tax Tip 4: Borrowing to Pay investment expenses Tax Tip 4: Borrowing to Pay investment expenses