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Hi Julia,
I purchased an investment property with settlement date in January 2022. The loan was $472,000 for all purchase related and initial repair costs. In actual fact this was around $3,000 short in the first place, so I used extra money redrawn from my PPOR loan to cover that.
Subsequent to that, I found that there were other maintenance/repair costs that arose in this first year of around $8,000 which I needed to fund out of the redraw of my PPOR loan. So my PPOR loan outstanding debt increased by $11,000 including the original shortfall. I understand that according to ATO ruling TR2000/2 that I am allowed to apportion the interest of my PPOR loan into investment and non-investment purposes and to then treat the interest expenses for the $11,000 portion as tax deductible. This is going to complicate my life forever more whenever doing tax returns, plus I have also lost $11,000 of money that I would have used for personal non-investment purposes. So I am wondering am I allowed to do the following?
I plan to refinance my investment loan so that it is now $483,000, and take the extra $11,000 to put back into my PPOR loan to be available for redraw again.
My question is – can I do this in a way that makes it clear that the $11,000 drawn out of the refinanced investment loan is to pay back for the investment expenses that were made in the past, and still treat the whole of the interest payments for the $483,000 investment loan as being tax deductible? Then I would stop apportioning the PPOR loan as being a mixed purpose loan. Or will I have now made things even more complicated for myself and need to apportion BOTH loans forever more as being mixed purpose loans? It would seem unnecessary to apportion $11,000 of the PPOR loan for investment purposes, and at the same time $11,000 of the investment loan for private purposes when the end result would be the same if one could be treated cleanly as fully for private purposes and the other fully for investment purposes.
If your answer is NO – i.e. that I would now have to treat BOTH loans as mixed purpose loans – can you recommend any way that I could do this more cleanly before I go ahead with it, and still get back the $11,000 for personal usage?
Thankyou
Answer
If you read through to paragraph 18 of TR 2000/2 it will show you how you can refinance to separate the $11,000 out from your personal home loan. Basically set up two separate loans one for each portion and pay the existing loan down at exactly the same time with the proceeds of these loans.
18. A taxpayer may choose to refinance a debt outstanding on a mixed purpose sub-account by borrowing an equivalent amount under two separate accounts or sub-accounts. If the sums borrowed under those two separate accounts are equivalent to the respective income producing and non-income producing parts of the existing outstanding debt, we accept that interest accrued on the debt incurred in refinancing the income producing portion of the mixed purpose debt will be deductible.
If you go about it the way you suggest, that is borrowing $11,000 to pay into your home loan, it will just be treated like any other deposit and have to be apportioned pro rata between the two purposes. So no improvement in your situation at all.
I attach our apportionment calculator. If you decide not to refinance to split the loan, this calculator should make it as easy as is possible to manage the mixed purpose loan.
