Refinance IP and transfer to PPOR offset

Discussion in 'Investment Strategy' started by Jim Barry, 6th Mar, 2018.

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  1. Jim Barry

    Jim Barry Member

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    Hello PCers,

    Can someone help me understand the implications of the following scenario?

    Say you have an IP which over time has increased in value, you refinance to access the equity (say ~ $100,000). You're not ready at that particular time to purchase another IP so you move those funds to your PPOR offset with the aim of reducing your non-deductible debt in the interim.

    What are the tax implications of this? Are you now changing the purpose of the IP loan?

    Thanks in advance for your thoughts.
     
    Jim Barry, 6th Mar, 2018
    #1
  2. Peter_Tersteeg

    Peter_Tersteeg Mortgage Broker Business Member

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    This probably changes the purpose of the IP loan.

    You're borrowing money to effectively pay off or offset a non-deductible loan. This is not a tax deductible purpose, therefore the interest on the $100k would not be tax deductible.

    It's also possible that you'd contaminate the existing debt against the IP, putting the deductibility of the existing debt at risk.

    It's a pointless exercise, and will actually cost you more given the interest rate on an investment loan is likely to be higher than that of an owner occupied loan.
     
    Peter_Tersteeg, 6th Mar, 2018
    #2
  3. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    Wont be deductible, but check with acctant

    The "correct" way to do this i to have a clean offset on the new 100 k loan and park the spare 10 there .

    Some client accountants dont like that and trot out Domjan V Ato and insist the cash goes back INTO the new 100 k loan for later redraw, or into a loc etc

    Seek advice specific to your circumstances


    ta

    rolf
     
    Rolf Latham, 6th Mar, 2018
    #3
  4. Terry_w

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

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    The interest will not be deductible. You may also have caused a mixed purpose loan.

    see
    Tax Tip 1: Parking borrowed money in an offset account Tax Tip 1: Parking borrowed money in an offset account
     
    Terry_w, 6th Mar, 2018
    #4
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  5. Jim Barry

    Jim Barry Member

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    Thanks all for your replies.

    Your tax tips have no doubt saved you much typing Terry.
     
    Jim Barry, 6th Mar, 2018
    #5
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