PPOR, ATO and timing

Hi,

I've just had an offer accepted on a new house whcih my wife and I will move into. We plan to rent our old home out as an investment property.

We have made many payments well in advance of our mortgage and I use the redraw facility like a bank account. At the moment I have about $120k redraw available and owe $180k.

We haven't settled on the new house yet and haven't put in our finance request to the bank. So my question(s) is:

1) At what point are you not able to take out the redraw before you are ripping off the ATO. For me this is timing. I haven't bought my second home yet and use my redraw to pay bills, pay for the credit card etc. At what point can I no longer touch the redraw?

2) If I do do a redraw and put all the available funds from my existing mortgage into an ordinary savings account before I settle is this OK?

3) If I do max out the redraw before we settle how would the ATO know. I've never declared how much I owe on my Principal Place of Residence before on a tax return.

I know this questions been asked before but I'm not clear on timing. Hope someone can help.

Cheers,
Stumurr

 

You've pretty well stuffed this up. Each time you redraw you are actually borrowing again as far as the ATO is concerned. If your redraws are for personal purposes eg food etc your deductible borrowings will be well under $180000 when your PPOR becomes an IP.

TR 2000/2 - Income tax: deductibility of interest on moneys drawn down under line of credit facilities and redraw facilities (As at 1 March 2000)

Gadens Lawyers

You might need to consider selling half the property to your spouse or vice-versa or selling to a trust

 

jrc is correct, you are legally stuffed.

I hear what you say, how would the ATO find out? It would only be on a random audit but it is you declaring on your tax return true and correct.
I doubt it is worth the risk, legally and ethically.

Depending on lower income earner (if applicable) you might consider transferring ownership (I don't know WA rules but in Vic, no stamp duty is applicable) so she becomes the title owner and if it is rented out, it may be positively geared in her name and she paying little tax or at a lower marginal rate.

Look at options that will achieve the best solution for you.
Greg