Please Help? How can I "CLean" My IP loan?

ok so I have done something stupid because I didn't talk to you informative people first. I have an IP that has a P&I loan of 195k. My repayments had taken me down to about 145k when I decided that I wanted a new car so I re-drew 30k to buy the car now I have stuffed up my deductable dbt haven't I?

Is there anyway of "cleaning" this loan to make all the interest deductable or do I have to calculate the NON-deductable debt forever and a day?

 

IMHO, Yes, you have.

IMHO, no, I don't think you can clean the loan & yes, you will have to apportion the good & bad interest until the loan is paid out in full!

Unfortunately.

 

DAMN

Damn, thanks anyway GAD

 

You can sell the car, deposit the money back in, and buy a new car with a personal loan.

Alternatively borrow the money via a personal loan, and deposit the proceeds back into the home loan.

 

Incorrect.
The ATO state that you cannot make a decision to just attribute a certain payment to non-deductible or deductible debt.
It effectively is treated as 2 loans now - a deductible and non deductible component. Any payment against the loan must be apportioned in the % of the loan balance.
EG
$200k loan, $150k (75%) of which is deductible, $50k (25%) is non-deductible.
You make a $10k payment.
you must treat $7,500 of that payment as being paid against the deductible portion, and $2,500 of that payment as being against the non-deductible portion.

You should have just got a line of credit.

 

you serious? But if you sell the car, which the money was used for, and then pay it back, then how can it be attributed propotionally to deductable and non-deductable?

That means when you sell some shares, which you funded from the same loan, now pays back proportions as well? That sounds silly..

 

so what happens if you do the opposite like I suggested? Sell down some shares, which arnt in profit, then pay down your non-deductable debt proportionally?

 

I think you gotta dispose of everything then rebuy it using separate finance. Or maybe sell via an off market transaction to a spouse and then buy up again yourself. Be a good motivation to double your holdings

At least stamp duty on shares is gone. CGT might be an issue and negate any benefit.

Maybe a private ruling from the ATO might be worth chasing up to see what they say?

 

If I go to the bank and say that I want my 175k loan to become 145k interest only and the remaining 30k seperated into another loan, would I then be able deduct the interest on the 145k loan without aportioning? and pay down the 30k as quickly as I can? (since it is non-deductable) Then once the 30k is payed down, I have a clean IP loan again.

 

It is all about the purpose of the loan.
if you follow that through then splitting the loan will effectively leave you in the same spot you are now in, although more complex again!

This is not advice by any stretch, but the odds of you getting caught and the ATO trawling through your loan statements is pretty slim.
If you were to get another loan and pay it down off your existing loan, separating the deduct/non deduct components, if the ATO ever looked at you I doubt they would cry about it too much.
The case in which the guidelines were laid down for apportioning the payments was a very complex one, where the lady had a ton of loans and had been living off them, funding private purchases, and funding investment expenses for years.

 

Well I think the ATO wouldn't even know about it unless for some reason they rang my bank manager and asked him. I could just leave it as is and hope I don'[t get audited, whats the worst that could happen? have to pay back that portion of interest? would only be a minimal amount

 

plus the large fine they will hit you....

I do think crc MAY be onto something.

If you buy shares and sell them (regardless of a loss or profit) the initial cost when repaying the loan is repaid before any of the loan? (ull find most margin loans have this option, cost to loan, profit to seperate bank account)

HOWEVER im not sure if this will extend to a non deductable purchase. I imagine if you sold the car you could use the amount to repay the initial loan (however i doubt the proceeds would be enough, and u couldnt top up it so it equalled). If the conditions do extend then this might be an option, however it really might not be worth it IMO. As long as you dont capatilise interest on the loan its fairly easy to work it out. 20.68% of your interest each month is non deductable, the remainder is deductable. While the interest will decrease each month as the P decreases, the % will remain the same

If you were paying P&I on the investment loan, you wont be any worse off after this redraw in interest deducatbility. It would of only changed if you used an offset. With an LOC it would of been simplier and you could of paid off the 30k quicker, but at the outset the % still would of been the same.