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Untangling Mixed Purpose Loan

Discussion in 'Accounting & Tax' started by Kirsti327, 26th Jan, 2016.

  1. Kirsti327

    Kirsti327 Active Member

    Joined:
    2nd Jul, 2015
    Posts:
    40
    Location:
    Newcastle NSW
    Hi everyone,

    I've been reading Tax Rulings etc but couldn't find an answer to my specific question. Hoping someone might know the answer.

    So I stuffed up a few years ago. I knew enough to keep my deductible and non deductible debt separate, but I've paid deposits and expenses for three different IPs from one single loan, which is secured against my PPOR.
    I now know that it could create problems if I sell one of the IPs, and it's already a pain when doing my tax return. You should see my spreadsheet!

    No immediate plans to sell, but I'm refinancing a loan now that's just off it's fixed rate and thought it could be a good time to start tidying it up.

    I know that it's allowable to set up three new loans for the exact amounts I've drawn for each property and use them to payout the current mixed loan. But I didn't really want to do three new loans with associated costs just yet.
    My question is: if I arrange a single new loan for the exact amount relating to one of the properties, can I use that to partially refinance it and at least have that one property segregated?
    I would then do the next property once I had more equity available in the IP it relates to and set up the new loan against the IP to get it off my PPOR

    Would it be worth seeking a private ruling do you think? Or would it be an outright "No"?
     
  2. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Location:
    Sydney
    Is your PPOR loan principle and interest?

    Yes, but there will be consequences. Because any money paid into the big loan will reduce the deductible debt on the other 2.

    No need for a private ruling.

    What you should do now, before anything else, is to work out the splits and then refinance the current loan into 4 splits. Once you have 4 splits then you could increase the investment loans on the properties hat each split relates to and then pay off these splits.

    Tax Tip 44: How to Un-Mix a Mixed Loan

    Tax Tip 45: How to work out the Portions of a Mixed Loan
     
  3. Kirsti327

    Kirsti327 Active Member

    Joined:
    2nd Jul, 2015
    Posts:
    40
    Location:
    Newcastle NSW
    Thanks Terry,

    My original non-deductible PPOR loan is fully paid off so I've only got deductible loans left (a loan secured by each IP which is solely for the purchase of that IP, and one loan secured against my PPOR that I drew three deposits/costs from).
    I kept the non-deductible debt in it's own split the entire time so I'm confident that I've done that bit correctly.

    So in your response, were the 'consequences' you mentioned based on the assumption of non-deductible debt? If all debt if deductible is there still a problem (apart from the ongoing calculations to work out the proportions for the other two loans)?

    Basically, if I increase my loan against IP 1 and use it to pay out part of the loan against PPOR, can I say that it's repaying the part of the loan for the purchase of IP 1, or will the ATO say that the deposit is actually split between IP's 1, 2 and 3 based on their proportions in the loan? Which would then make the loan against IP 1 a mixed purpose as well making the whole situation worse.

    *sigh* seems like a lot of hassle (and fees) to get my current lender to split it just so I can refi each part again (to another bank as well).

    At least I know better for IP 4 now
     
  4. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

    Joined:
    18th Jun, 2015
    Posts:
    8,979
    Location:
    Sydney
    Thats good that there is no non-deductible debt mixed in, but you will still have issues.

    You don't do this:
    Because:
    see Tax Tip: An issue with mixed purpose loans where both portions are investment.