Is Your Investment Property Loan a Mixed Loan?
Sometimes investors get themselves into trouble by mixing up loans such that the loan has a private as well as an investment component. Where you borrow money to produce assessable income as buying a rental property then in most cases the interest associated with the borrowing will be deductible.
However, if you at some future stage decide to do a redraw on these funds and the redraw is not for the purposes of producing assessable income then you end up with what is referred to as a “mixed loan”.
An example of how this might happen is when Mr Jones takes out a $300,000 loan to purchase an investment property which he then rents out at the going weekly rental for the area where he purchased the rental property. A year after taking out the loan Mr Jones inherits $100,000 from his deceased uncle’s estate. Mr Jones then decides to pay down the investment loan with the $100,000 from the inheritance. Some months later Mr Jones decides to go on an extended overseas holiday and redraws $30,000 from the $100,000 he used to pay down the investment loan.
We now have what is referred to as a mixed loan. This can have significant tax implications going forward. If you pounce on this issue quickly then the problem can be resolved at a minimum cost, however, if left unresolved for a number of years and there are further redraws the problem can involve significant cost to resolve or worse, if the ATO conduct an audit with the potential of interest and penalties payments.
If you have an investment property and you have done a redraw we would encourage you to call us and check whether you have a potential issue. We can normally identify if there is a potential issue with minimum cost.
Should it be the case that there is an issue we will work with you to resolve the issue giving you confidence that you will not face an unwanted problem going forward.
The information in this blog is general in nature and should not be acted or relied upon. If you have concerns or are about to take out an investment loan you should seek professional tax advice in relation to the potential tax issues of such loans.
Balanix Solutions – Taxation | Accounting | Business Advice.
Situated in Strathpine on Brisbane North, we partner with our clients to assist them in their accounting, business management and bookkeeping needs. Our clients vary in industries from professional services (such as law, vet and dentist) to the trades (mechanic, bricklaying, plasterer etc), hospitality and retail. Are clients are located in the Pine Rivers area (including Brendale, Lawnton, Albany Creek and Eatons Hill) through to Kallangur, Petrie, North Lakes and Caboolture, as well as Brisbane South, the Gold Coast and various other parts of Queensland.