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Tax deduction of redraw on PPOR loan used for IP deposit

Discussion in 'Accounting, Tax & Legal' started by shireeshm, 18th Dec, 2013.

  1. shireeshm

    shireeshm Newbie_slm

    Joined:
    17th Dec, 2013
    Posts:
    1
    Location:
    Sydney, NSW
    Hi - Newbie on this forum. Situation I have is -

    I have a 114K loan on PPOR with an 100% offset ac linked. Offset ac has 115K savings on it.


    Tactical plan for IP deposit
    : Deposit for IP needed is 35K. I will do an extra repayment of 35K from above offset ac into the 114K loan. Will then redraw 35K and pay deposit+other expenses for IP. I understand by doing this, the interest accrued on 35K part of the PPOR loan is tax deductible.

    My question is - After the IP settlement is done then the PPOR P&I repayment will be a mixed one (35K - tax deductible, rest not). How will the tax deductions work for the interest payment? Or is the redraw tactics not the best one? What is the best practise in that case?
     
  2. Terryw

    Terryw Well-Known Member

    Joined:
    9th Jun, 2006
    Posts:
    653
    Location:
    Sydney
    If it was IO you could apportion it easily. But because the loan is PI each repayment will be reducing the part used for the investment also.

    So what you should do it to set up a new split, a LOC ideally, and use that for the deposit for the investment. That way you can pay down the personal debt independant of the investment and thereby save non deductible interest and increase tax deductions.