Shifting funds and debt recycling

Hi all,

We have been exploring the DR strategy and have some things we don't quite understand around shifting funds and setting up correctly.

If we have savings in an offset and we need to put this against our PPR and redraw to invest, would you normally pay a part of a loan down and split, or split first and then pay down?

Also, we have a couple of investment properties we are looking to sell over the next couple of FY which have equity pulls against them. Is it possible to use these funds to pay down some PPR debt, redraw and invest with? I would guess the interest on the equity loan will become non-deductible but will the redraw against the PPR then become deductible? The equity loans would then be paid down upon sale.

I understand the risk of losing value on the IP and not making assumptions about a sale, we wouldn't have to sell if things get that bad,

Happy to hear any thoughts, comments, and feedback about any risks this idea may pose,

Thanks guys,

 

Best to split first and then pay down and reborrow.

Loans can be recycled too.

Seek tax advice

 

Thanks Terry, what do you mean that loans can be recycled too? And if reborrowing, would you need to go through an application process again?

 

You can sell an investment property, pay off its loan (or close to it) and redraw to invest further - without applying again. The security might need to be another property though

 

have sent you an email

 

Hello!
This thread best describes my situation. I'd like to start DR and have 80k in my redraw account. Is it best to withdraw from the redraw, and then ask for a split and then repay the split loan and then reborrow? Or can I request a split loan that uses the 80k that is already paid?
Cheers.

 

either, but you should pay down the loan and reborrow the $80k and invest - ideally straight from the loan account. Get advice from someone licensed in tax.

 

@Terry_w this always confuses me :- if one can keep good record of moving $$$ and can proove the funds ate used ti invest then it doesn't matter if it is straight from the loan account or not.

I do see that uou emphasis on investing A to C rather than A to B then to C

E.g. bank given 200K equity P+I Loan Fixed with offset and at settlement (due to refinance) all 200K goes into the offset attached to this 200K loan. This iffset has no other money therefore hummm Mr Smith can transfer/bpay the money from Offset account to trading account/managed funds account etc and all the Interest be deductable!?

 

The law basically says 'if you borrow to invest'. If the ato accepts that the invested money can be traced back to the loan it might be deductible interest. 'might'!

 

Thanks Terry...do you know uf anyone (or is thete any example) where someone was unable to claim and ATO refused?

 

on the Domjan case, but she mixed the loan with offset money.
See my tax tip 1 where I have evidenced at least 2 positive rulings.

 

Terry if the security is against the property being sold will the bank require a new application to change security? I'm not sure I could get a loan for the full amount of my current debt in this economic climate.

 

Generally not. But some might.
Even if they do you might be able to get around it with careful planning.

 

Thanks Terry. Looks like another appointment!