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refinancing a contaminated loan

Discussion in 'Accounting & Tax' started by shelleykins, 2nd Jul, 2015.

  1. shelleykins

    shelleykins Well-Known Member

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    Hi could anyone please clarify if refinancing a contaminated investment loan (ie money has been withdrawn from loan and used for non investment purposes) to a new lender "purifies" the loan for tax purposes as the contaminated loan is paid out by the new lender
     
  2. Peter_Tersteeg

    Peter_Tersteeg Finance broker and strategist Business Member

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    Not really. The money was still spent and used for a non deductible purpose.

    You can't solve the problem outright, but you can repair it and prevent it from getting worse. If you figure out how much of the loan is still deductible and how much isn't deductible, you can split the loan into two accounts via a refinance. One for each type of debt. From there, make sure you don't contaminate the deductible portion any further.
     
  3. Perp

    Perp Well-Known Member

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    Peter's "not really" was diplomatic; I'd go for a flat-out "no". :)
     
  4. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Lender is not relevant, nor is security. It is the use that is important.

    Why not just split the loan into the relevant portions and pay off the non deductible part.
     
  5. shelleykins

    shelleykins Well-Known Member

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    So if I have withdrawn$6000 for personal use from a $415000 loan would I just do a two loans - one for $6000 (to pay out asap) and one for $409000?
     
  6. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Assuming you haven't made any deposits, yes.
     
  7. shelleykins

    shelleykins Well-Known Member

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    Oh... Thanks for the reply Terry. So if I withdrew the money 6 months ago and I've been making fortnightly repayments (p&I) how much more would I need to include with the contaminated $6000?
     
  8. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    you would need to set up a spreadsheet and work out the percentages and then every deposit would come off both portions. complex. You might just have to make a reasonable estimate.
     
  9. shelleykins

    shelleykins Well-Known Member

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    Thanks Terry. I really appreciate your generosity with your knowledge.
     
  10. Bran

    Bran Well-Known Member

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    Hypothetically, if one did this without realising the consequences, or in fact that this was the wrong thing to do, whats likely and/or the worst to happen?

    Lets say the sums are very similar to the OPs.
     
  11. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Likely - you would get away with it.
    But if caught the ATO would penalise you, the penalty would depend on the severity, whether you did it intentionally etc.
     
  12. Bran

    Bran Well-Known Member

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    I'll tell my friend, I asked for them. Thanks.