Taxation/Structure Effect on Refinance

Hi All,
I am sure this has been answered before but what happens to a loan split on a refinance in terms of claiming the interest deduction and structure.

A sample scenario:
500k Investment loan - deductible
100k equity released into seperate split and then used to purchase a PPOR - non deductible.

Few years later you refinance the investment loan and the incoming lender pays out the 600k.
It they pay it out in a single loan wouldn't it be mixed purpose as the "purpose of the funds" was to pay out both an investment and non investment loan?
Or would they also need to create 2 splits as per the previous structure to keep the purpose of the funds seperate?

 

Refiancimg doesnt change loan purpose or deductibility directly. But in this situation you would end up with a mixed purpose loan.

 

So what would be the best way to structure this? Would it be a loan split from the new incoming lender to match what is currently in place?

 

Yep - create the same structure in the new loan.

 

The $100k should have been a LOC with the $500,000 IO.
When refinancing down the track the $100,000 LOC can be converted to an IO loan with the $500,000 also being a separate IO loan. Any further borrowings to future use should be a LOC.

 

Or if it is a single blended loan 16.67% would be non-deductible.

 

And this is fairly straightforward for any decent accountant?

 

If it was my client I would ensure that the 2 former loans refinance to the new loan and document that and the % non-deductible. Simple. If ATO enquire I can show the refinancing and the adjustment for the non-deductible. What will complicate it is a later amount drawn etc on this loan etc.