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Interest deductability related to security?

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  • Interest deductability related to security?

    Hi
    Wondering if anyone happens to know whether the exemption which allows continued interest deductability on new builds is in any way linked to the security offered on the debt for the new build.
    For example, Joe owns 3 existing investment properties mortgage free (existing housing stock, not new builds). Joe buys 3 more investment properties (all new builds) with 100% debt, offering the 3 existing properties as security such that he has a 50% LVR across his portfolio of 6 (assuming all houses are of the same value).
    The purpose of the lending is clearly to acquire new builds so I assume that 100% of Joes interest remains tax deductable under the new regime (???).
    I'm going to take expert advice on this in due course but thought it worth checking if anyone has a firm understanding of how this works, I can't find anything online which helps.
    Thanks


  • #2
    Originally posted by m78 View Post
    I can't find anything online which helps.
    No surprises, there. The current gummint has raised unintended consequences to art form level.

    Sorry - I realise that's no help. Perhaps others may have helpful insights?

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    • #3
      What is a new build? Have the muppets released a definition/rules yet?
      The three most harmful addictions are heroin, carbohydrates and a monthly salary - Fred Wilson.

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      • #4
        If the intention is to funnel money and activity into maximum effect, then the prime new build would be a new dwelling on a new bit of land.

        Anything else and you would be diverting funds, material and effort away from the target of expanding the supply of houses.

        It's a wide strategy.

        It's best to take it property by property and borrower by borrower.

        I'd say any fancy schmancy portfolio type setup should be excluded,
        As it puts investors into direct competition with first home buyers, for space, materials and skills.

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        • #5
          I thought It was the purpose of the borrowing that matters. Eg if you borrow against your own house to buy a rental you could claim the interest previously I think? Wouldn’t the same apply here? Purpose of the borrowing not what the security is?

          problem also is once you have owned the house it isn’t new any more so once you sell it if it is more a rental type place the number of buyers might be reduced unless the rules change back again so would this lower the capital gain if it has lost its taxable advantage unless you can sell it to an owner occupier?

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          • #6
            Personally, I'd be looking to deleverage the market a bit.
            And simplify the types of debt intertwining.
            For that you want wages building the deposit, and wages paying for the interest repayments.
            You also want to incentivize owner occupiers.

            Is makes for a more immediate sustainable system.
            Also it incentivizes younger people to be productive.

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