PPOR debt recycling

Discussion in 'Accounting & Tax' started by Freedom Seeker, 20th Jul, 2020.

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  1. Freedom Seeker

    Freedom Seeker Well-Known Member

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    We drew some equity ($400k) from our PPOR to purchase 2 investment properties a few years ago. Now we are looking at moving to another bank which offers much better rates. Will the ATO still consider the $400k loan with the new bank tax deductible?
     
  2. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    im not a tax guy............

    But id say yes

    Purpose test

    ta
    rolf
     
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  3. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    This would be a refinance. Refinancing doesn't change the deductibility of interest - unless you bugger it up along the way.
     
  4. Paul@PAS

    Paul@PAS Tax, Accounting + SMSF + All things Property Tax Business Plus Member

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    Important that the loan can continually be traced. eg retain old statements, New loan should refinance the old and leave that $400K as a stand alone loan - eg same amounts no increase. Not mixed with another loan just for convenience. Hence Terrys caution about buggering it up. Ideally when doing this refinance you should split the $400K into the amounts used to buy each of the two properties or maybe even into three so the original purpose is also a split loan. That can be more complex than you realise if its P&I etc. You may need to calc the proportions of each that relate to the existing balance. Common mistake I see is you drew $400K equity so you will split the $400K now. That may be incorrect. It can render a loan "buggered" and ATO could query calc basis in future years. If they query they dont recalc. They just say its not right so we are proposing to deny some or all of the deduction.
     
  5. Freedom Seeker

    Freedom Seeker Well-Known Member

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    Thanks for the valuable advice, Paul. I am actually planning to take an additional $100k equity out in this refinance. I plan to split the loan into two portions: $500k investment loan +300k PPOR loan ( property value is around $1M, LVR 20%). The $100k cash will be used for buying another investment property. Splitting the investment loan into 3 portions to represent their uses for 3 IPs may be too complex.
     
  6. Freedom Seeker

    Freedom Seeker Well-Known Member

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    Thanks for the advice.
     
  7. Paul@PAS

    Paul@PAS Tax, Accounting + SMSF + All things Property Tax Business Plus Member

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    So what could occur if you sell one ?
    Or move into one ?
    Or one is destroyed by fire ?

    Its a very short term vision to accumulate multiple purposes for borrowing and just call it "deductible".