tax when remortgaging with same back

Discussion in 'Accounting & Tax' started by sector7g, 30th Mar, 2019.

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  1. sector7g

    sector7g Member

    Joined:
    22nd Dec, 2015
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    Location:
    Melbourne
    Hi all,

    I am working through uncrossing and remortgaging three properties that I currently have with the same bank. The plan is to stay with that bank and use equity from the three uncrossed properties (once LVR for each is <80%) to purchase a fourth with this bank.

    Previously I overpaid Property 1 into redraw and then made a small withdrawal on purpose to trigger a recalculated lower monthly repayments.

    The LVRs are as follows:
    - Property 1) LVR: ~50%. Mortgage outstanding = ~440k
    - Property 2) LVR: ~80% Mortgage outstanding = ~350k
    - Property 3) LVR: ~100+% Mortgage outstanding = ~360k


    Before I sign the discharge papers I would be keen to know the following.

    When restructuring - if I take equity from property (e.g. 100k AUD) and place it onto property 3 they will all be approx 80% LVR. Given that these three properties are all now restructuered as new standalone mortgages - can I nowl claim the full tax deduction on interest payments for the amount of the increased mortgage balance for property 1 (e.g. if it goes from 450k AUD outstanding up to 550k AUD?)

    Or, does the fact that I made the small withdrawal, mean that I cannot claim tax deduction on the increased mortgage balance interest payments and thus can only claim against the original 440k (not new 540k balance)?

    Thank you for any constructive input.
     
  2. MWI

    MWI Well-Known Member

    Joined:
    17th Jul, 2017
    Posts:
    2,287
    Location:
    Lower North Sydney NSW
    The purpose of the loan, what's it used for, dictates tax deductability. Hence, if it is solely used for investment you can claim BUT if you use it for any personal spending... well then you cannot.
    Being with the same bank I would worry whether you don't come under 'all monies' clause, and whether you will not cross-collateralize your loans, I hope not! Perhaps refinancing some to other banks would make it more attractive? Sometimes the more you hold with one bank makes it less favourable, let's say they will value your IP1 at 60% LVR , or even worse IP2 at 85%, then they may hit you with mortgage insurance etc.... they may value some more or less not what you think they are worth....!
    Hard to advise without knowing your whole situation, so just a suggestion since you are planning to refinance, why not go with some other lender say for 1 or 2? I personally use many lenders for that purpose especially when I was accumulating....
     
  3. Terry_w

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

    Joined:
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    Australia wide
    Your wording is vague so I am not sure what you are wanting to do.
    A mortgage is different to a loan. 2 different things. Mortgages don't effect deductibility of interest it is the use of borrowed money that determines deductibility.

    You cannot take equity from a property. You can borrow secured by a property.

    It seems you might be increasing one or more loans and changing the security of these loans. Deductibility won't change if I have understood what you are doing correctly