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Ktg2704(Newbie)Newbie
31 May 2023

Hi ATO,


If I do a cash out on an existing Investment Property (IP) to fund the next IP deposit but only use half the funds, can I then go ahead the transfer the remainder of the funds to my other IP offset accounts (other banks) and still keep the interest deductibility on the portion I transfer out? These other offsets are used solely for property investment purposes (no personal spending).


Also, would the interest on the cash out loan be deductible against the asset used as security (1st IP) or the IP we purchase using the funds? If the latter and we buy 2 IPs with those funds, does it get apportioned based on the percentage of those funds that went towards each IP purchase?


Just a bit confused, hoping someone can explain so I don't make any errors and contaminate the loans.


Thanks

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579 views
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Bruce4Tax(Taxicorn)Taxicorn
1 June 2023

Also, would the interest on the cash out loan be deductible against the asset used as security (1st IP) or the IP we purchase using the funds?


The property purchased.


can I then go ahead the transfer the remainder of the funds to my other IP offset accounts (other banks) and still keep the interest deductibility on the portion I transfer out?


No deduction for interest on loan to fund offset deposits.


https://www.ato.gov.au/law/view/document?docid=EV/1051791717017


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Most helpful reply

Bruce4Tax(Taxicorn)Taxicorn
1 June 2023

Also, would the interest on the cash out loan be deductible against the asset used as security (1st IP) or the IP we purchase using the funds?


The property purchased.


can I then go ahead the transfer the remainder of the funds to my other IP offset accounts (other banks) and still keep the interest deductibility on the portion I transfer out?


No deduction for interest on loan to fund offset deposits.


https://www.ato.gov.au/law/view/document?docid=EV/1051791717017


Ktg2704(Newbie)Newbie
1 June 2023

Hi Bruce,


Thanks for your response, however I believe the situation in your example is different to mine. Your example is using funds in an offset linked to a PPR loan, and then taking those funds to buy an IP, which now reduces your offset balance and as such you incur more interest on your PPR loan. This 'extra' interest is not deductible as it constitutes personal spending, this makes sense.


The example I am referring to is as above, with the key difference being the original loan is an investment loan ie. cash-out secured against IP for investment purposes, part used to actually purchase an IP and now the remainder used to top up external IP offset accounts. My question is whether the 'extra' interest related to the portion transferred out to top up the external IP offsets is still tax deductible.


Hope this makes sense.


Cheers

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