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100% tax deductabilty - Existing lender taking time to increase loan amount

Discussion in 'Accounting, Tax & Legal' started by amsaini15, 15th Jun, 2010.

  1. amsaini15

    amsaini15 Member

    Joined:
    11th Jun, 2010
    Posts:
    11
    Location:
    Sydney
    Hi
    I need advise to make sure my loan is 100% tax deductable.

    I have just signed a contract for my 1st IP and would be topping up my loan with my existing lender of my PPOR to fund 10% deposit on the IP.

    Current Loan (PPOR) - $193K
    Estimate Cost = $325K


    Purchase Price of IP = $320K
    10% Deposit = $32K

    I have 10 business days to submit 10% deposit but my existing lender has not even started the process of valuation and top up of my loan. I do have have cash to pay for 10% deposit but then if I pay it that way, I think it will not be tax deductable. Original idea is to fund 32K from the top up amount of my existing loan.

    As time is short rather than waiting for top up of 32K to go through, is their any way I can pay 32K now (extra cash in offset of my existing loan) and at the same time request existing lender to top up my loan to make new separate account 32K IO loan. I want to settle new loan and dont want things to fall off due to delay with my existing lender.

    If i pay from my pocket how will I justify ATO that top up was to fund IP for deductions. They might ask you already funded IP with your own money and top up was done later on so it was not used directly to fund IP.

    So question is what sort of arrangment I can make so that I have 100% tax deductability where my existing lender is taking time to top up my loan.

    Please advise.
     
  2. Rob G.

    Rob G. Well-Known Member

    Joined:
    6th Jun, 2007
    Posts:
    717
    Location:
    Melbourne, VIC
    If you initially pay 10% from your offset/savings, you cannot later borrow to repay yourself.

    Can you get an extension ?

    Alternatively, finance companies can provide deposit bonds (essentially a guarantee).

    I have heard some Accountants suggest you provide your own bond from your savings and merely substitute borrowed funds later ... but this is getting too close to borrowing from yourself and you would need legal advice.

    Cheers,

    Rob
     
  3. amsaini15

    amsaini15 Member

    Joined:
    11th Jun, 2010
    Posts:
    11
    Location:
    Sydney
    Rob, Currently I have got 10 business days and I would definately request extension if required.

    I just want to be better prepared in worst case scenario.

    As you mentioned deposit bond, I would have to check with my solicitor what does it involve. So I am assuming my only other option would be this in case I dont get extension.
     
  4. GregR

    GregR Reid Consultants

    Joined:
    13th Jul, 2009
    Posts:
    273
    Location:
    Berwick Vic
    It sounds as if you had not quite got everything arranged first in order for what needs to happen and have been caught out.

    I agree with Rob, use a deposit bond. They are generally cheaper anyway that a deposit and the cost is deductible. A mortgage broker can arrange or you should be able to do it yourself.

    Even if you chose not to do this, you can pay the $32k from your own funds and replace that when the refinance comes through in another 4 weeks or so which depending on lender, may take that long. Once you draw down the $32k, the interest cost can be claimed from that point. You are simply substituting. You will miss out on the interest deduction for the first few weeks perhaps. It won't run into the $'000's.
    Good luck
    Greg
     
  5. amsaini15

    amsaini15 Member

    Joined:
    11th Jun, 2010
    Posts:
    11
    Location:
    Sydney
    Thanks Rob !! In last few days, I called ATO and confirmed I will be fine if I do exactly as you suggested. That was a big relief :)