Splitting PPOR loan for IP

Hi all,

In need of some advice as to what I can possibly do to try to remedy the situation as previously had no idea about the importance of offset over redraw until lately reading through the wealth of information on this forum.

Long story short, bought our PPOR in Sydney at 2.3mil Dec 2019 with 90% LVR (LMI exception) redraw facility only.
Fixed portion of the loan for 1 year until July 2021 and completely paid down variable portion (approx 680K).
Bought IP for 2.1mil Nov 2020 with settlement mid January (different lender).
Took out 100k for 5% deposit from redraw, but straight away topped up 100k with savings in another savings account.
Stumbled onto Property Chat forums and realised shot ourselves in the foot with our loan structuring.

Thinking to try and salvage the situation as much as possibly by splitting the loan hopefully prior to settlement mid January.

Questions:
1) Should I just split the variable portion of the loan to 300K/380K (another 200K needed for stamp duty plus remaining 5% deposit), and would the 300K be fully tax deductible?

2) If I was unable to split the loan until post settlement, would later splitting it say in Feburary still allow me to claim the 300k as tax deductible?

3) Should I do a larger split of say 400K/280K so that 100K can be slowly used to pay off other things related to the IP eg: land tax, council fees, etc, which could then be all tax deductible once I incurred the cost?

4) Is the 100K that I took out from my PPOR loan, which I subsequently repaid into able to be still split back out and tax deductible?

5) Going forward we plan to eventually turn our PPOR into an IP and buy a 3rd PPOR, so any tips for future loan structuring? Aware that when fixed portion of loan expires to convert to a fixed or variable loan with full offset only (no more redraw)


Thanks in advance

 

I am both a tax person and a credit adviser, but don't take this as advice.


1. No. you should work out the relevant size of the splits and split accordingly. You have created a mixed loan, but the relevant size of the mixed portions won't be $100k as you have paid into the loan since mixing.

2. No. You can split later but the size of the deductible portion won't be $300k

3. Potentially you could borrow to pay other expenses.

4. Only the interest component could be deductible but it won't be on the full $100k because of your mistake

5. get some tax advice before doing anything.

You have wasted years of deductibility of interest by making mistakes so get some tax advice before you compound the mistakes - advice from someone licensed to give tax advice, not a broker.

 

Hi Rolf,

By that, I mean I've withdrawn 100k from our current PPOR loan to pay for the 5% deposit on the IP, however unfortunately as I was not aware you could even claim tax deductions on taking money out from the loan as an investment, because we had spare funds in another unrelated "high" interest rate savings account, we repaid the 100k back into the loan.

 

Hi Terry,

Thanks for the reply. Learning a lot by reading through your tax tips and realise have definitely lost a lot in tax deductibility.

In terms if trying to salvage as much of the situation as I can:

Re 1)
I'm a bit confused as to what you mean by that, but I do understand i have created a mixed loan. Would I still be able to claim any portion of that 100K or is it as good as gone?

2) so it is in my best interest to split the loan ASAP (preferably prior to settlement). But assuming logistically I can't seeing as I'm not sure if my current PPOR lender can act fast enough, and most of the tax agents I've found through the forum such as Paul seem to be away until mid January.

5) the issue is settlement may arrive before I can engage a tax advisor so in that situation would it still be better to pay it from my PPOR loan and just not repay the loan down for now?

Thanks,
Oliver

 

it is in your best interests to get tax advice before settlement

1. a portion should be claimable

2. best interests to split asap and get tax advice asap

5. i am not sure of your situation so best to get specific tax advice.