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Owner Occupier loan tax deductibility

Discussion in 'Property Finance' started by Warren, 24th Feb, 2016.

  1. Warren

    Warren New Member

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    Ringwood
    I currently have 2 loans secured by PPOR.
    A) $250k for investment purposes. Funds currently unused and sitting in an offset account.
    B) $150k still owing on the purchase of the PPOR.

    Both loans are marked as Investment loans according to the financial institution and I pay a higher rate of interest accordingly. The reality is loan B should be marked as OO (owner occupier).

    I'm in the process of topping up loan A by $170k to $420k. I plan to purchase an investment property. It was suggested by the financial institution that I have both of these loans converted to OO as they are secured by PPOR.

    Would converting loan A to OO affect the tax deductibility of the loan?

    My guess is that it wouldn't affect deductibility as the purpose of the loan is for investment even though it is registered as a OO loan.
     
  2. Jess Peletier

    Jess Peletier Mortgage Broker - Australia Wide Business Member

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    It won't affect the deductibility, just the rate.
     
  3. Peter_Tersteeg

    Peter_Tersteeg Finance broker and strategist Business Member

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    What the bank thinks is generally irrelevant, it's what you actually use the money for which defines deductibility.

    A couple of things (which I'm sure you're already aware of)...

    * Quite a few lenders will see the increase is for investment purposes and put it under an investment loan despite the security being owner occupied. Great if you can convince them it's for personal use however. Just be prepared for investment rates.

    * Can be risky to put the cash from an equity release into an offset account. It may not be a problem, but it does make it easy for a problem to manifest itself. It's usually best to put the money into a redraw facility of the equity release account. Just make sure there's still about $200 or more owing as many lenders will otherwise automatically close the account.
     
    Last edited: 24th Feb, 2016
  4. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Before you go any further seek tax advise as parking in an offset account is not recommended and increasing the same loan will result in mixing what could be already be mixed.
     
    Perthguy likes this.
  5. Warren

    Warren New Member

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    17th Nov, 2015
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    Location:
    Ringwood
    Thanks for the advice.

    I suspect loan A will end up being marked as an Investor loan despite the initial advice I'm getting from the financial institution. I'll let them alert me to that fact. ;)

    Peter and Terry, thanks for alerting me to the various issues in releasing money into an offset account. With that being said, I have been very careful in how I've used the offset account thus far. I have read Terry's tax tip 1 and I believe have every deductibility aspect covered.

    Nonetheless, its probably a good time to start a fresh loan rather than a top up. This would ensure there is no question of it being mixed.