PPR to IP in the future

Discussion in 'Accounting & Tax' started by Acorn, 29th Apr, 2020.

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  1. Acorn

    Acorn New Member

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    I might want to change my PPR to an IP in the future (10 years maybe) and I have $100k in a redraw account (before I realised the benefits of the offset)

    Is it possible and a good idea to stop paying my mortgage until the redraw is down to zero and put the money I’d normally pay into the mortgage into an offset account. How will that work for the future tax deductible section of my mortgage? Will this have the same negative implications of actually redrawing the money?
     
  2. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    im not a tax guy

    but technically now, cos the purpose of the redraw is for personal use

    Did your banker/broker ask the " future use" q ?

    ta
    rolf
     
  3. Acorn

    Acorn New Member

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    I haven’t done it yet. I’m not taking out the redraw, I’m leaving it in the mortgage account
     
  4. Terry_w

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

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    Generally it is not possible to stop paying the loan, but you could borrow to pay it.

    You will be capitalising the interest and could lead to a larger amount being deductible if the property is rented out, but the Commissioner could deny the deductions so seek tax advice.
     
  5. Paul@PFI

    [email protected] Tax Accounting + SMSF Business Plus Member

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    You have already reduced the deductible element if it was to become a IP it cant be fixed. Best you open an offset now and put all future extra $$ to that. In 10 years you could split the loan so the existing balance is deductible and borrow any new $$$ but I suspect that borrowing is to buy the future main residence. Alternatively you could draw out the redraw money now and also put that into the offset and work out the % of the loan on that day relevant to each use and diligent record the deductible % now. It wont then change. The benefit of doing this is to avoid further compounding and erosion of benefits as every $$ of extra repayment further affects the deductible element downwards. 10 years is a way off so that may be a benefi to lock that in today.

    eg Two elements of the loan are the total less redraw and the funds drawn from redraw to offset. eg If loan was $400K today and you draw $100K to the offset then $300K is the original loan purpose and $100K is the redraw (non deductibe) So you would lock in 3/4 as deductible for 10 years time.