Is the Main Residence Exemption Safe if Home is Security for Investment Property

Question

I am planning to buy an investment property – an apartment in Hobart.
I am applying for a loan. The lender won’t lend me enough money (new loan for an investment property) to cover the cost of the apartment unless I use my current owner occupied property as security (my house in Lutana, Hobart).
I am going to see a financial broker who suggested to take 2 loans. One loan is going to be an investment loan to cover around 2/3 of the borrowing amount and second loan on my current home which is going to be an owner occupied loan and should cover around 1/3 of the borrowing money. I think that this is the plan, not sure how it works really.

Please my question is if I can still claim on my tax all the interest paid on the second loan (the owner occupied one, helping me to buy the investment property).
I was given some information regarding this – it’s called TD 93/13 Deductibility of interest on a loan used to acquire income producing property where non-income producing property is used as security?
And finally, will I ever have to pay any CGT on my primary place of residence/owner occupied property which I am using as security to cover 1/3 of the loan? I am fearing that if I take advantage of claiming interest paid on this owner’s occupied loan – TD 93/13, I might be subject to CGT or apportion of CGT payable on my primary place of residence – my house in Lutana, Hobart.
Hope it makes sense.
Also Julia, would you be happy to help me with my tax return for this coming tax return for 2021/2022. I sold my land which is treated as an investment property and I would like to work out CGT payable to ATO. It’s ok if you don’t service Tasmania, I will try to find someone else. But you are the best!

Thank you kindly Julia for you reply.


Answer

As stated in TD 93/13 what the borrowed money is used to buy determines whether the interest is tax deductible. As all of the loan secured by your home is used to buy a rental property all of the interest is tax deductible. Your broker has set you up correctly with a distinctly different loan for the rental property to any other loan you have on your home.

Whether your home is covered with your CGT main residence exemption is about it being used for private purposes, that none of it is used to produce income. Merely providing security on a loan for another property being used to produce income will not change the private use of your home so your CGT main residence exemption is safe.

Having said that, is the interest rate for the loan secured by your own home lower than the loan secured by the rental property? If so consider securing as much of the borrowings as possible against your home. With interest rates so low a difference of just 1% reduces your interest bill by 25%.

I have attached a calculator that will help you work through what needs to go into the CGT calculation for the land.

Our North Melbourne office is considering jumping the straight and opening a Tasmanian office. They also have a service specifically designed to receive client information on line but still a personalized service in that they contact you to work through your return. I of course, because of my other commitments, are the most unreliable Accountant in the group.


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