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Really need your help - redraw, split or maybe im ok?

Discussion in 'Accounting, Tax & Legal' started by guyguy2003, 24th Oct, 2009.

  1. guyguy2003

    guyguy2003 New Member

    Joined:
    16th May, 2008
    Posts:
    2
    Location:
    Australia.QLD
    Hi Everyone!

    I have a situation which is a *bit* complex, and I am not sure what to do. Maybe someone smarter than me would be able to help? :eek:

    Mid april I revalued two houses in queensland that I own, one in Brisbane (which is my PPOR and has a granny flat which I rent out), and one in the Gold Coast. I got extra money out of my loans and topped them up.
    All together I have 3 loans - one for the part of house which me and my sister occupy in Brisbane (loan A - 195000), one for the granny flat in the same house (loan B - 190000 + 25000 top up), and one for the Gold Coast property (loan C - 460000 + 14000 top up).

    From loan C I only got about an extra $14000, and I topped up loan B with $25000. The money immediatly went to my offset account which is against loan A as it's the only one I don't claim tax for (so minimizing my non tax deductable loan) - I understood from my accountant then that the 25000 and 14000 bits of loan B and C are non tax deductable and if I put the money back to them and redrew it later it would be tax deductable -in proportion- rather than the whole 14000 and 25000 being tax deductable.

    I recently moved to Sydney (Renting atm) and bought an appartment just now, still need to pay the deposit (in cooling off period). My sister still lives in Brisbane, but it might not be for long she might join me here in June next year and in this case I will rent the whole house out (so loan A will become tax deducatble).

    All together my buying expenses are going to be around $62000 for loan D (for the new Sydney appartment, that cost about 500000) - that's bond, stamp duty etc.
    The appartment is currently rented out but I might want to move into it at some stage - so because I dont know exactly what's going to happen in that case yet it makes it even more difficult.

    The problems start with my accountant saying to me that because I took the money out in April but only bought now (October) and have other transactions on my offset accout - It would be very hard to prove the tax office the money I took out is actually going to be used for investment purposes. She suggested two optsion:
    1. I would put into Loan A the $62000 as loan A is currently non tax deducatble at all - and redraw that money and make sure I specify its for the purpose of paying for the new property. that would make that part of the loan tax deductable. that's her favourite option, problem is that if I rent the whole house and actually live in the new appartment then $62000 of potential tax deductable interest will not be tax deductable anymore as they went for the new appartment.
    Option B is to split the 2 loans I topped up (B and C, which is what I probably should have done originally) to say 190000 and 25000 for loan B, 190000 is the original amount and 25000 what I toped up, same for loan C (only with 14000), pay off almost all of 25000 and redraw it, and do something similar to loan C. each time I do it it would cost me $300 tho. and still have $23000 to put somewhere or just take out of the offset account..
    She is also not sure that it would be Kosher as far as the tax office is concerned (she didn't convince me anyway).

    After all this long story.. :) I want to know if that's OK and will the tax office treat the split as Kosher, I didn't pay off any of these loans other than interest (they are both IO).
    Is it REALLY not possible to just treat the redraws I did originally as tax deductable when I buy this appartment? I never went under the $45000 in the offset account I took out I only added on top, I have $92000 in my offset account.

    p.s. : Another unrelated question about CGT - I was told that since I lived in the granny flat (I lived in the whole house for a year and then rented out the granny flat) I can treat the whole house as excempt for 6 years. Is that true? (another difficult case).

    If anyone has any other idea, thought or insight I would love to hear it.. :)
    I just try to get my head around all this mess and its very difficult..

    Cheers
    Guy
     
  2. Billv

    Billv Getting there

    Joined:
    15th Jul, 2007
    Posts:
    1,796
    Location:
    Sydney, NSW
    Guy

    I actually agree with your accountant.
    Once you contaminate the loans it can be impossible to fix the problem so keep your investment loans separate from your offset account.

    If you still dissagree with your accountant you can claim the interest based in your interpertation of the rules but it seems to me that your case is rather clear so if you get caught you won't be able to explain your reasoning so you'll pay the money back plus you'll be fined.

    The 6 year CGT exemption is legit
     
  3. guyguy2003

    guyguy2003 New Member

    Joined:
    16th May, 2008
    Posts:
    2
    Location:
    Australia.QLD
    Thanks mate - a quick question tho - can I still split it?

    Hi again! :)

    If I split the topped up loans to the old component and the new top up - then repay them (but leave say a few dollars so that the bank won't close them) and then redraw from them (and claim tax for it is used for the purchase of the new investment property) - is that kosher?

    Thanks for your advice

    Guy
     
  4. Billv

    Billv Getting there

    Joined:
    15th Jul, 2007
    Posts:
    1,796
    Location:
    Sydney, NSW
    yes that should work