Refinancing PPR loan and tax considerations

Hi all

I am in the process of refinancing my current home loan and am looking at releasing funds to use for investment purposes and wanted to double check I hadn't overlooked any serious issues.

My current position is as follows:

• Have a PPR with a desktop valuation of $450k
• Have loans secured against the property of approximately $288k and $27k (was split to fix the main portion on establishment)
• Have an offset account of approximately $17k offsetting the smaller loan split

Proposed structure would be:

• Loan split 1 of $285k fixed P&I
• Loan split 2 of $25k variable P&I with a linked offset (all income would be deposited into this offset to minimise non-deductible interest expenses as much as possible)
• Loan split 3 of $50k variable P&I with a separate linked offset (funds would only ever be in this offset initially as I am establishing investments)
• PPR will be used as security across all 3 loans

Loan splits 1 & 2 are purely being used to refinance existing PPR loans (will make up the shortfall from existing offset balance). Loan split 3 will be used to purchase income producing investments.

I have a few questions to make sure I haven't stuffed anything up:

1. If I choose to rent out my PPR in the future, would interest on loan splits 1 and 2 likely be tax deductible? I have purposely refinance marginally less than the outstanding balances to make sure 100% of the purpose of the loans was to refinance the original loans - the original loans were 100% used to settle my PPR.

2. For loan split 3, if I have that settled to a clean offset account linked to the loan split 3 with no other funds in it and were to purchase investments with these funds is this likely to cause any issues for deductibility of interest? It doesn't seem I can purchase the investments directly from a loan redraw so no matter what way I proceed I would have to at a minimum pass it through the offset account.

3. Further to question 2, I could potentially pay back into the loan and only redraw the specific amounts to fund each asset purchase at a time, e.g. if I was buying a parcel of shares for $10,000 I could redraw exactly $10,000 to be available in the clean offset account to settle the shares. Would this improve any potential issues or is it not necessarily required?

4. Finally, have I made any stuff ups here or is there anything glaringly obvious that I've missed?

Thanks in advance for all your help, I've been stalking the forums quiet a bit over the last month or so and there seems to be an absolute wealth of knowledge available from some regular posters.

Also, sorry for making a new post but I feel like I could have put this in any number of places so thought a new post was easiest.

Thanks
AndrewM

 

1. Do they relate solely to the purchase or the improvedment of the property?

2. See my tax tip 1 and seek tax advice.

3. same

4. I don't know what you don't know so hard to answer.

 

Thanks @Terry_w

The original loans relate solely to the purchase of the property, there have been no extra repayments or redraws for any other use etc.

Given the new loan split will be P&I and there would be principal repayments over time, if I repay the balance (less a nominal amount to make sure the loan isn't closed) into the loan and redraw to avoid parking funds in the offset account, how is the tax deductible % worked out given there will be a small amount which wouldn't be used for investing purposes (could be only $49,500 end up being used for example).

Also, the principal repayments over time don't change the % deductible in the above scenario do they?

Thanks again for any insight you can offer.

 

If you only use part of a loan you will only be charged interest on that portion drawn so assuming all other requirements are met 100% should be deductible.

 

Thanks very much, it's a pain that I couldn't do it as I/O as it would have made it significantly easier to deal with this.

 

PI should be just as easy to manage, but the loan will be reducing over time though

 

Not planning to be overly active with my debt recycling, will maybe just look to refinance every few years as I end up with more equity available overall. This current refinance was more about releasing some equity to take advantage of current market conditions.

The big loan is fixed at 2.29% for 3 years.

Thanks