Offset account/Redraw deductions

Thanks for the quick response Terry. Is there any other arrangement I can make to allow interest tax deductable?

The current PPOR is under the joint name of my wife and me. Can we sell it to say, myself as the sole owner, then set up a new loan as IP. Then I think the interest on the new loan will be tax deductable since the property is an IP and I borrowed money to purchase it. Will this work? I know it will attract stampe duty. Is there other cheaper solutions?

Thanks

 

No other way. You could sell the property and buy a new one borrowing 100% and use the proceeds to park in a new PPOR offset.

You could purchase to buy out the share of your spouse, or vice versa, but if the property is in NSW stamp duty will be payable, if VIC no stamp duty. You must also set it up right for the interest to be deductible.

Plan ahead for the next one. I advise my clients of the benefits of buying in one name. That way while the place is still your main residence the non owning spouse can borrow to buy 50% without stamp duty and without CGT. Once owned jointly the couple can then move out and rent it.

 

Thanks Terry.

By borrowing more than 80%, it will attract mortgate insurance premium. Will the tax benefit and interest saving on my new PPOR overweigh the insurane premium? Probably this question is hard to answer withouth exact figures.

I live in NSW. If I purchase the 50% share from my spouse, I will only need to pay 50% of the stamp duty of the value of the whole property, right? However, me being the new owner, will it be able to tax deductable on the interest when I rent it out?

 

you will only pay LMI if you borrow more than 80% of the security. You can borrow 103% without LMI by a few methods such as using separate loans. Spousal loans may also be a possibility.

In NSW the duty will be on the value of the amount transferred. So a $500k property, if you transfer 50% you would pay duty on $250k. Purchaser pays duty.

if you borrow to buy a property and that property later produces income the interest on that loan should be deductible if set up correctly.

 

Thank you, Terry. I will talk to my accountant tomorrow. I might get in touch with you later if my accountant is not up to the game. From your homepage I found your contact number.

 

Keep in mind this is both tax and legal advice

 

Hi Terry,

How much would you charge for an initial consultation? I'm in Sydney. The topic I'd like to cover relates to my PPOR and investment property and how to manage the tax (as you can see, I screwed up by putting all my savings into redrawal instead of offset.)

Thanks

 

Hi Dan. I charge $550 for a 2 hour consultation.

 

offset accounts

Hi,

I have a PPOR with an offset. I owe $440k on the PPOR and have $440K in the offset so it is balanced out.

I also have a crossed investment loan with an offset. The investment loan has equity of $500K. I also have two unencumbered properties which I intend to sell in 3 - 5 years on retirement.

What I would like to do is pay off the monthly interest on the investment loan with the equity, thereby increasing the investment loan. Is this possible?

Thanks

LE

 

It would be possible, but you should be asking if the interest will be deductible or not. Possibly not.

 

Offset Accounts

Thanks Terry,

Basically, I just want to capitalise the investment loan and put any extra funds into the offset. This will increase the investment loan (and the offset with the extra funds). I am hoping to place funds into the offset when I sell a couple of unencumbered properties in a few years. They will be CGT free as I am an ex-Navra client with capital losses...

The purpose of all this is to increase the available credit limit on the investment loan. After selling the unencumbered properties and placing the funds in the offset the investment loan will be increased to $1.7M with $1.7 in the offset so I can utilise the offset funds in retirement. The tax deductibility of the capitalised investment loan might put a halt to all of this.

I hope I am explaining this well

LE

 

You should seek tax advice and probably a PBR. Your main purposes appears to be an attempt to increase deductible interest so ATO may deny deductibility, but there is the retirement aspect which you could run.

 

Thanks Terry,

Much appreciated. You're right I should go to the source and that is the ATO for a ruling. I have heard I can and can't deduct capitalised interest.

LE

 

capitalised interest can be deductible, but the ATO can deny the deduction if it involves a scheme with a dominant purpose of increasing deductions.

 

Yes, thanks again

The tax deductibility is important but the main reason is to increase the credit limit on the investment loan and put as much as I can into the offset. Later on selling the unencumbered properties and thereby neutralising the loan with the offset.

I am 64 and when I retire I will tinker with LOE at a low level for extra funds. Our PPOR will go to the kids and any equity left in the IPs.

Thanks for your help Terry

LE