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

Discussion in 'Accounting & Tax' started by akira, 26th Mar, 2016.

  1. akira

    akira Member

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    Brisvegas
    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
     
  2. Cadbury99

    Cadbury99 Well-Known Member

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    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.
     
  3. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    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
     
  4. Jess Peletier

    Jess Peletier Mortgage Broker - Australia Wide Business Member

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    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.
     
  5. akira

    akira Member

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    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?
     
  6. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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