Refinancing & LMI

Discussion in 'Accounting & Tax' started by aquilia, 17th May, 2020.

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  1. aquilia

    aquilia Member

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    17th May, 2020
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    Melbourne
    Hi everyone,

    Just after information from wiser folks here about what happens to LMI on my investment property loan if I refinance.

    If I refinance, the new LVR will be less than 80% so no LMI payable. Am I able to claim a deduction for the balance of it remaining in the current financial year or do I continue deducting it in my tax return over the 5 years that I am allowed to?

    Thanks in advance.
     
  2. Terry_w

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

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    Yes if the loan relates to the investment and it has been less than 5;years.
     
  3. aquilia

    aquilia Member

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    Melbourne
    Thanks Terryw, appreciate it.
     
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  4. Paul@PFI

    [email protected] Tax Accounting + SMSF Business Plus Member

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    I have noted many clients are asking about this. Provided the loan is broken while still a IP and available for rent the broken loan can bring forward the break cost AND the related borrowing costs as a deuction prior to 30 June. Even if the break cost and benefit are alike the cashflows can bring forward deductions....But reduce the 2021 year interest deductions.

    One client put it to me this way....So I pay $12,000 in break costs. Then I estimate that at present variable rates I stand to benefit by $11,000 over the next year. So what do I stand to gain ?
    1. A deduction at 30 June for $12K... ie a higher refund of $5100
    2. The lender even said the break cost can be capitalised. (Its still deductible as its incurred and capitalisation inst a concern)
    3. 2021 deductions will fall by $11,000. But that at its worst wont mean the extra tax of $4675 is due until May 2022 (Or reduces a refund)
    4. Borrowing costs of $1855 become deductible at 30 June 2020 where it would have only been approx $990. A extra refund of $367
    5. If rates fall further given the`economic situation you benefit by each 0.01% reduction

    One client even realised that if he breaks the loan and then refinances to another lender the new lender will pay him $3K. Thats not assessable either
     
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