PPOR to IP, no offset, only redraw

Discussion in 'Loans & Mortgage Brokers' started by woofwoofpawpaw, 11th Nov, 2019.

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  1. woofwoofpawpaw

    woofwoofpawpaw Active Member

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    Hi,
    Our current home is almost paid off but our mortgage setup doesn't have an offset account. It comes with redraw facility.
    1. If we use the money in the redraw to buy our next home (current home convert to IP), we can claim the interest as tax deduction?
    2. Is there any way to salvage the situation? Given that our current loan was set up without an offset account?
     
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  2. TSK

    TSK Well-Known Member

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    covered off in Terry tax tips.
    depends on owner ship but one partner sells to other (perhaps stamp duty) is probably way to do it.
     
  3. woofwoofpawpaw

    woofwoofpawpaw Active Member

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    I am hoping to do it without transfer of title...
    Current home is held in joint ownership..

    Another thought, could we refinance now into a loan with offset account? We would service this loan for 12-18 months before buying our next home.. would ATO still '''trace" the previous loan (redraw instead of offset)

    We are not exactly in a hurry to get the next home...
     
  4. Lindsay_W

    Lindsay_W Well-Known Member

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    IF the next home is going to be your owner occupied you'll find the funds you get from your redraw to put towards the purchase won't be tax deductible
     
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  5. Marg4000

    Marg4000 Well-Known Member

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    In an audit the ATO will want all documentation for up to the last seven years.
     
  6. croseks

    croseks Well-Known Member

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    Where the money comes from doesn't matter, it's the purpose the money is being used for that does.

    For example, you currently live in your PPOR, any loan you get on this address is non tax deductible because the purpose is for your PPOR.

    It's not the offset account that you need, the fact is that if you convert your existing PPOR into a IP you cannot claim any tax deduction as you cannot get a loan on the property until you move out of it (for example, renovation costs or subdivision etc..)

    You would be better off buying an IP fully financed, then selling your home and upgrading PPOR later.

    Ask yourself this question, if you were buying an IP, would you buy the current PPOR on its investment merits?
     
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  7. Terry_w

    Terry_w Well-Known Member Business Member

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    1. No
    2. No
    But see my 11 strategies in my signature link as there are some things that could help
     
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  8. Terry_w

    Terry_w Well-Known Member Business Member

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    This wouldn't change anything
     
  9. Terry_w

    Terry_w Well-Known Member Business Member

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    It's the use borrowed funds are put to that determines deductibility. Loans have been paid down and redrawing is new borrowings so what the redrawn funds are used for is what counts.

    The original loan may have been used to buy the current property so what is left on this loan, assuming now redraw, may be deductible when the current house is rented out
    The interest component I mean
     
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  10. Trainee

    Trainee Well-Known Member

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    A new loan used to buy a ip, secured by the ppor, would be.....?
     
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  11. croseks

    croseks Well-Known Member

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    OP mentioned he wants to buy new PPOR (new loan) and make existing property into IP
     
  12. woofwoofpawpaw

    woofwoofpawpaw Active Member

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    We are in Melbourne..
    Can we do a spouse transfer without triggering stamp duty?
    The spouse holding on to the property will apply for a new loan with offset ( for interest to be tax deductible)

    Can this work?
     
  13. Terry_w

    Terry_w Well-Known Member Business Member

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    See my tax tip on this
     
  14. Archaon

    Archaon Well-Known Member

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    He is asking a fundamental question as your premise is flawed.

    It doesn't matter where the loan is it depends what the funds are for as to whether they are deductible or not.
     
  15. TSK

    TSK Well-Known Member

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    Unlikely. Unless you're getting divorced. See Terry's tips. it's pretty much unavoidable (laws changed in 2017 or around there), best you are likely to do is take a hit up front via stamp duty and get tax deductions for the life of the loan. Get legal advice.
     
  16. Terry_w

    Terry_w Well-Known Member Business Member

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    It can be done but only going to joint for ppor without consideration otherwise duty
     
  17. woofwoofpawpaw

    woofwoofpawpaw Active Member

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    Without consideration would be a gift?
    Gifting is not tax deductible- if I understand your tax tips correctly
     
  18. Terry_w

    Terry_w Well-Known Member Business Member

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    It would be a gift of no consideration.
     
  19. TSK

    TSK Well-Known Member

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    Basically, you're trying to convert non deductible to deductible. There is going to be consideration in some form. Are you gifting it and then looking to purchase it back in full from your partner. Not sure if there are weird tax laws around that.
     
  20. Terry_w

    Terry_w Well-Known Member Business Member

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    No weird tax laws only logical ones. Interest can only be deductible where it relates to the production of assessable income. If borrowing to gift there is no income that relates to the borrowings