Please Help with My Finance - Tax Situation

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  robbyjones on 01/01/2020 - 21:11

  +7

  No, you can't do this unless you are purchasing another investment property. You could do this and even if the bank lend you the money (and I seriously doubt they would) the tax department would catch up with you eventually and you will face stiff penalties.
  You can't refinance for any more than you owe on the same investment property, you can't even refinance for the amount you originally borrowed to purchase it if you have paid some of the capital back.

  • Edit to say you can refinance for more than you originally borrowed but you can't negatively gear for more than the original amount (less any capital paybacks)
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    mducpham on 01/01/2020 - 21:19

    thank you so much for your help mate! I will not pursue that path then.

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  CheapskateQueen on 01/01/2020 - 21:40

  +2

  In no scenario can you claim the interest on your owner occupied loan as a deduction.

  if you merge your loans, every loan repayment you make will be split between the OO portion and investment portion of the loan. You cannot "direct" your payment to your OO loan, if it's one merged amount. You'll be paying the principal loan amounts off both loans equally. Not only is this not ideal(obviously wanting to pay your OO loan faster) but your apportionment calculations will be tiresome and difficult.

  https://www.ato.gov.au/law/view/document?docid=TXR/TR20002/N…

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  jace88 on 01/01/2020 - 21:58

  Are these going to be merged into a single mortgage loan? I would've thought for most people in this situation, it would become a single overarching facility with one set of package fees (which you'd need to apportion) but there'd still be clear loans/segregation between the different properties as the OO loan will have a different rate to the Investor loan, and you'd also be able to see the interest being charged on each.

  But even if it wasn't possible, you'd still need to apportion it between the two given the OO loan is not earning taxable income.

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  jecec on 01/01/2020 - 23:12

  +2

  Top tip as given above. NEVER merge your investment and OO loans.

  1) Also, to add (and correct some of the above comments - "Edit to say you can refinance for more than you originally borrowed but you can't negatively gear for more than the original amount (less any capital paybacks)").

  You actually CAN borrow/refinance and negative gear for more than the original amount for your investment property. When negative gearing, the thing that matters is the "use of funds". Here's an example…

  You bought your IP for $100k. You initially took out a loan of $80k. Over the years, you've paid P&I and you loan balance is now $60k. Even if you refinance to another bank back to $80k, you can only negative gear for the interest charged on the $60k (as you've historically paid off till that amount). HOWEVER….. if you refinanced back to $80k and use the $20k extra cash that you've now got from the refinance to buy another investment property or shares, you CAN claim tax deduction on that amount (negative gearing).

  2) I'd also like to challenge the comment above "In no scenario can you claim the interest on your owner occupied loan as a deduction."

  In fact, you actually CAN in some scenario. In the same logic as the above, it is the "use of funds" that matter. Example: If you have an owner occupied loan of $500k on a $1 million property. You can get a line of credit / redraw of say $300k (which means you now have a loan of $800k). You then use that $300k to buy an investment property or shares.

  The interest you pay on that $300k portion is now tax deductible.

  In any of the above scenario, one needs to be careful not to dilute/contaminate your loans. i.e. always slit loans and keep the investment portion seperate. See a financial planner, tax advisor for more details.

  Hope that makes sense… Also, look up debt recycling.

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    CheapskateQueen on 02/01/2020 - 09:34

    yes you can borrow against your OO property for an investment purpose and that investment portion is deductible.. I'm talking about the portion related to the home.

    For someone as clearly uninformed as OP, trying to keep it simple.

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  spal on 01/01/2020 - 23:50

  By now you would be sufficiently clear on the tax issue. Regarding the refinancing, restructure the loan with bank C into three different loan accounts. One each for OO, existing investment loan (current outstanding balance) and the top up loan. If you are likely to use the top up loan for both private and investment purposes, it would be better to have this part split into two parts too. This would give you flexibility, easier to maintain records and justify tax deductible expenses.
  Most banks allow this and charge only one set of package fee.

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  Seraphin7 on 02/01/2020 - 09:56

  Won't work. The tax deductibility of the loan is based on the purpose of the loan, not the security provided against it. In other words, the ATO will determine that $192k is for the purpose of funding your PPOR and therefore is not deductible.