Question about using PPOR loan to buy IP

Discussion in 'Accounting & Tax' started by alps, 17th Dec, 2017.

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  1. alps

    alps Well-Known Member

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    Hi all,

    I know this have been asked in all sorts of derivatives in the past, but was hoping you guys could help me with this. For the purpose of the exercise, I'll use hypothetical round numbers:

    We purchased our PPOR many years ago using an IO loan from our Bank, split into 2 loans with full offset. For some years now, our offset has equalled loan amount so not had to pay any interest.

    Lets say the loan amount is $1m and we want to use the loan amount to purchase an IP for $1.5m. If we consolidate the 2 loans and revert the loan to P+I (to reduce the bank interest rate to 3.99%), and then use the offset amount to put towards the purchase of the IP (making the loan fully drawn again), will the $1m loan amount be tax deductible?

    Thanks,

    B
     
    alps, 17th Dec, 2017
    #1
  2. Terry_w

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

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    No
     
    Terry_w, 17th Dec, 2017
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  3. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    Im not a tax guy - seek personal advice

    I would suggest............. depending on lender and a few other things

    pay down the 2 loans to near zero, with the offset funds

    thence redraw against the loans and use the fund for the purchase.

    thence do whatever you need to with the PI etc

    In all that mix you might also consider a port of the loans to the new IP as well - few tricky bits for new kids.

    This is a common strategy we use where our clients dont have borrow cap, or they are no longer working etc

    preserving existing lending is now pretty important

    doesnt fix your problem of where to get the balance of the 500 from to complete though !

    id expect there is a solution there somewhere

    ta
    rolf
     
    Rolf Latham, 17th Dec, 2017
    #3
  4. Ross Forrester

    Ross Forrester Well-Known Member

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    I think you should take a new loan to buy the new property.

    If you take cash out of an offset you are effectively paying cash to buy a rental property. So the interest on the old loan will be private (and not tax deductible) as it relates to he purchase of your main residence.

    So no. Do not do that.
     
    Last edited: 17th Dec, 2017
    Ross Forrester, 17th Dec, 2017
    #4
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