PPOR to IP with a positive Cash Flow


After 4 long years my wife and I decided to turn our PPor to an IP. The strategy was to rent cheaper and benefit from the rental income. Purchase Price: $450K, Loan Balance $183K, Rental Income: 32K per annum (excluding all expenses), Current Value:$530K

We recently purchased a 2 bed unit as an IP under a unit trust account.Purchase Price: 235K, Loan1: $188K, Loan 2 LOC: 50K, Rental Income: $15K (excluding all expenses)

Also placed a deposit on a block of land to settle in Oct 2012 @ $226K and currently seeking quotes from various builders to build the house with a budget of $260K. The completion will be in March next year 2013. This will also be purchased by the trust account.

I have structured our loan for all work income to be deposited into a with a redraw facility account attached to our home loan and all other investment Stand Alone loans attached to the LOC, where all rental income, property expenses and loan repayments to go to/from this LOC. I also attached a buffer to the LOC of $20K

Question: With our PPoR being positively geared, is the interest still deductible where the rental income be taxed no different than any other IP? In relation to tax it appears that I will be losing out on a fair when the land is purchased with no producing income for 5 months. Not to mention losing even more whilst entering a construction loan. Are there any suggestions you assist me in overcoming this? Any advise will be greatly appreciated.


Thank you in advance,



Hi Julia

Thank you for your reply. Just to make sure I clearly understand:

You mentioned that that "the interest on the land loan paid for and later the construction loan can be claimed right from the start". Does that mean I can start to claim this interest paid for the land on a weekly basis as from today. This land is owned equally by my wife and I, however she does not work, will that affect these payments?

And again to clearly understand or to double check, you mentioned that my PPoR will be treated as a normal investment property. So I assume that I will not be heavily taxed due to being positively geared PPoR.which I was converted into a IP.

My Tax agent advised me to enter into a Unit Trust. This however has been the worse nightmare ever.

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