Owner occupied vs Investment Loans

Hi PC's,

Seeking an experts advise on property tax implications.

Currently living on rent with 1 PPOR rented out & Other IP.

IP was initially being built for us to move in however after refinance, classified loan as Owner occupied had change of mind and decided to stay living in the city.

PPOR also refinanced this month and has been leased out since past 6 months and after refinance now have a residential investment property loan against it due to which rates have spiked to 4.50 and is negative cash flow.

Question is:
1. I would like to have PPOR reconverted to Owners occupied and take advantage of the 6yr exemption for negative gearing while its still on rent and low interest rate.
2. Other IP to remain as owner occupied with same scenario as above.
3. if PPOR remains on investment property loan , will i still be able to take advantage of the 6 yr exemption?

How would the ATO imply this for tax purposes?

Any advise on the same is appreciated and also happy to speak to clarify same.

Ritzzz

 

Im a little confused as well.

1. You have one PPOR and 1 IP ?
2. You have loans against properties ?

The loan against the PPOR wont be deductible unless it becomes an IP.

I think you are saying that the finance company called it an investor loan and now you get to claim interest ?

Sorry maybe im still hungover from christmas.

 

It seems like you are asking if the classification of the loan with the bank effects CGT or how the ATO views things - it doesn't.

 

Apologies for not being clear.

1. You have one PPOR and 1 IP ? Yes
2. You have loans against properties ? Yes

The loan against the PPOR wont be deductible unless it becomes an IP. (We lived in it a year as OO before renting it out however only during the recent refinance has it been moved to investor loan)

Terry, how does the ATO then determine the 6 yr exemption and only claiming one property as PPOR for CGT purposes?

 

Ahh ok so the old PPOR is now an IP. How the financier classifies the loan doesnt matter for deductibility purposes.

For the 6 year rule to apply you just need to prove that property was at one time your main residence. Electricity bills. Bank statements. Council rates. Motor vehicle registration. License registration. They will all show you lived in the property before it become an IP.

 

Thanks Michael so does that mean that the other IP classified as owner occupier loan if leased out, the interest will be deductible?

 

Do you also know where I can look this information up at?

 

Section 8-1 ITAA97

 

If the loan relates to the purchase of the property then the interest would be deductible once that property becomes available for rent.

See my tax tips for more general info:
Terry's Tax Tips

 

Thanks heaps Terry. Your tax tips are a treasure of information!

Just to confirm my loans are set up as:

PPOR- rented out classified as investor loan on P&I variable
IP- classified as owner occupier P&I variable as will move in for a while and subsequently rent out.

For simplicity purposes ive decided not to use offset accounts as its a nightmare during tax time and i believe in reducing the principal off the loan/ not depending on only the capital growth and refinance for more properties down the line, rather than just giving my money to the bank on IO which accumulates to almost double the loan amount itself in 30 years.

Would really appreciate your thoughts on whether this will help me build a strong property portfolio in 3 years time.

 

Without an offset where will your keep your spare cash?

 

Why will offset accounts make it a nightmare at tax time ?

 

What is "SPARE CASH" ????

 

Hi Terry, We plan to invest in another IP very soon so basically will use our spare cash there.

Everyday expenses are from a credit card paid off monthly from our savings account and rental incomings/mortgage payments come out of our savings too.

Michael ive prepared a loan amortization for my IP for the next 30 years as its on P&I and wouldnt want to complicate by having to calculate interest portion ech time a deposit is made in the offset if it makes sense

 

Michael just understood what you said. ANZ has a page where the interest paid can be seen for the FY years. You reckon they would show correctly for a P&I loan if linked to an offset?

 

This would be unnecessary from a taxation point of view

 

For every $10,000 in an offset that is approx $400 to $500 per year in interest savings.