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Sanjiv G.
Sanjiv G.
Kenwick, WA
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Hi. I have already bought an investment property from the available funds of offset bank account for a mortgage home where I live now.
To keep new house on investment officially I contacted NAB bank. NAB bank is ready to swap over the property title-papers but advices that I will not be able to take advantage of tax benefits by doing so because govt tax officers check what was the purpose of the home loan originally? Please advice me now how do I take advantage of tax benefits?

6 years ago

Responses

Did you set up a separate loan split for the investment deposit plus costs portion or take it from a personal offset account? if you took it form a personal offset then you may have a mixed purpose loan as you have mixed investment and personal debt.

If you used 100% cash from an offset account then this is considered a cash purchase and no deductions will be allowed as the funds where not borrowed. You needed to borrow the funds in order to create a legitimate tax deduction .

GDay Sanjiv,

your biggest mistake here is getting tax advice from the bank. Have a chat with someone who understands the tax implications of what you are up to.
Colin is partially on the right track with his comments on "mixed purpose" loans.

the thing to get straight at the outset is the deductibility of interest on a loan is determined by the PURPOSE of the drawings.

If you have a mortgage and you are ahead on your payments (ie made payments in an offset account) then subsequently draw down on this loan for a CREDITABLE PURPOSE, such as purchasing an investment property, then the proportion of interest on the loan that pertains to the CREDITABLE PURPOSE is going to be deductible.

So its a relatively simple calculation: figure out the % of the mortgage that belongs to the investment property and apply this to the total interest and claim this in your tax return.

where it gets complicated is when you make a subsequent drawdown for a different pupose, because this changes the % of the mortgage that belongs to the investment property. Another issue is that you cannot reduce the "non-deductible" portion in preference to the "deductible portion". that is why it is generally a better idea to have TWO facilities: one for the personal portion and another for the investment portion.

Get yourself a bean counter who understands this, and a mortgage broker who also understands this and talk to them about what you can do to maximise your tax benefits. You have already gone out and done all this, but at some point you may wish to refinance, and maybe that is good time to reset things up to maximise your tax benefits for the longer term.

cheers
BC

6 years ago

Sanjiv, you need to seek advice from an accountant/tax agent that understands property investment before going into such transactions.
A good firm will work with your bank/finance broker to ensure that the best deductions can be obtained, with both short and long term intentions considered.
I'd be happy to have a chat, but from your quick query, I fear you have a problem.

Todd.

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