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Tax deductible loan advice

Discussion in 'Accounting & Tax' started by MethodMan81, 28th Sep, 2015.

  1. MethodMan81

    MethodMan81 Active Member

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    Need some help with my situation as per below.

    Currently have a fixed loan on my ppor of $285K (property value $360K) with around $28K in redraw which brings the balance down to $257K. I am currently in the last stages of getting a loan for granny flat approved for $124K. Once the granny flat is built I will be living in that and renting out the house, the funds in redraw I will move into an offset against the new loan. From a tax perspective will the deductible interest be against the full $285K or will be against the $257K? I have read what Terry_w has wrote but I am not sure if this situation is different.

    Thanks for any input.
     
  2. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Where did the granny flat $124k come form?
     
  3. MethodMan81

    MethodMan81 Active Member

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    Sorry, it will be loan from the same bank as the first loan.
     
  4. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    a separate loan?
     
  5. MethodMan81

    MethodMan81 Active Member

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    Yes, is that the best way to go about it?
     
  6. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Probably.

    Now back to the original question - you want to borrow to park in an offset account? This will create a mixed purpose loan. Don't do it would be my advice

    Tax Tip 1: Parking borrowed money in an offset account https://propertychat.com.au/communi...ing-borrowed-money-in-an-offset-account.1313/

    Tax Tip 3: Mixing Loans - Don’t do it https://propertychat.com.au/community/threads/tax-tip-3-mixing-loans-dont-do-it.1517/
     
  7. MethodMan81

    MethodMan81 Active Member

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    Okay, thanks. Further down the track my I would like to purchase an investment property, so would I borrow the redraw from the initial loan as part of the deposit so that the whole loan amount is tax deductible? If there is a shortfall in the deposit could I use funds sitting in the offset account from the granny flat loan (IO with offset) to fund the balance and still be fully tax deductible?
     
  8. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    If you borrow to invest, without any detours, the interest should be deductible. Taking from redraw = borrowing.

    If you use offset account cash to invest then the extra interest incurred will not be deductible as this is cash and not borrowings. It might be better to borrow further against the property if possible If not possible then maybe consider paying down the loan and then reborrowing.

    Tax Tip 6: Using Redraw to invest
    https://propertychat.com.au/community/threads/tax-tip-6-using-redraw-to-invest.1837/

    Tax Tip 9: Don’t use Cash in Offset account to Invest https://propertychat.com.au/communi...nt-use-cash-in-offset-account-to-invest.2355/

    Tax Tip 11: Further Borrowing against property deductible against the income it generates https://propertychat.com.au/communi...against-property-deductible-against-the.2563/
     
  9. MethodMan81

    MethodMan81 Active Member

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    Thanks for that, much appreciated.
     
    Terry_w likes this.