Allocation of deductable interest

I'm selling a unit. Most of the finance for this unit will be repayed to the lender at settlement, but I also funded the purchase with redraws from other LOC's.

Problem is, those LOC are now fixed loans with interest paid in advance. I can not repay the borrowed amount to these loans at this time.

This means that the interest allocation on those part of the fixed loans is no longer deductable. Ideally if these loans where not fixed, I would pay the funds into the loans and then re-draw for another investment. It's a bummer and not easily re-arranged.

Problem is what do I do with the sale funds that should be used to pay down these loans? I would love to park in my PPOR loan, but could I still then re-draw for investment and claim the interest ? This makes sense if you "follow the money", but I want to ensure that loans for investment are not contaminated and keep their deductable status.

Yes, I've made life difficult, but any suggestions ?

 

I've had a similar situation before, just wanting to park money between investments. Essentially, if you use the funds for non income producing purposes they loose their deductibility, but you would regain that deductibility on an equivalent sum when you take the money out for another investment. A bit messy you just couldn't claim interest,etc, during the "own use" period.

The other way around it is to park the money into another investment: shares, managed fund, term deposit or maybe even a cash management account that you can liquidate as soon as you need the funds again. Provided that you can show the tax office that you are using it to maintain investments you should be OK.

We separate a bank account for feeding investments from the account for our own use. Even if the loan of money sits in this account, as float for the IP loans it feeds, it is considered OK, but I guess you're talking about a larger sum.

Of course, this is a question for an account, not advice I'm qualified to give, but I hope the ideas help, Dave.

 

Thanks Dave,

I'll park the cash in an account used only for investment transactions while I work out where it can go next. I have some more MF to buy soon, so I suppose this is some sort of "debt transfer" by using loaned funds to buy another investment.