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TPC Gold | Can You Use Your IP’s Equity to Pay Off Your Home Loan Early?

This snippet is from one of our previous episodes: Q&A – How to Avoid Poor Loan Structure 

It’s a question we get all the time from property investors: “Can I use the equity in my investment property to pay off my home loan faster?” 

In today’s TPC Gold soundbite, Bryce and Ben unpack this exact scenario—and explain why it’s not as straightforward as it seems. 

Spoiler alert: It all comes down to how the ATO views the purpose of your loan. 

In this short but powerful episode, you’ll learn:
💸 What the ATO considers a private (non-deductible) purpose—and how that affects your tax deductions
⚠️ How redraws and lines of credit can accidentally “pollute” your loan structure
✅ Why having separate splits and clean offsets is crucial for clarity and compliance 

Want to Avoid Costly Mistakes in Your Property Finance Strategy?

If you’re thinking about refinancing, using equity, or paying off your mortgage sooner, make sure the structure is right from the beginning. 

Book a free initial appointment with an investment-savvy mortgage broker from our sister company, Empower Wealth.

Need Personalised Tax Advice?

Tax deductibility depends on your personal circumstances and how funds are used. For advice specific to your situation, book an appointment with a qualified tax accountant from our sister company, Empower Wealth.

Remember: No mortgage broker should be giving tax advice. Always speak to a registered tax professional to get it right. 

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If You Enjoyed TPC Gold | Can You Use Your IP’s Equity to Pay Off Your Home Loan Early? You Might Also Like:


Transcript

Bryce Holdaway
We’ll go on to another sort of related question as we get all these segues. This is from Dean. “Hi guys, my question is can you use equity in your investment property to wipe out your principal place of residence mortgage? Cheers, Dean.” I’ll have a go at that. 

Ben Kingsley
Yeah. 

Bryce Holdaway
I’ll have a go at the answer, and you’re the mortgage broker, so you come and tidy up the edges…but the answer is you can do it. This is a common question. So people say: If I secure against an investment property and then pay off a non-tax deductible debt like a principal place of residence, can I do it? The answer is you can do it, Ben. But the tax department looks under and they go: What was the purpose of the loan? And if you secure against your investment properties to use a loan to pay off a private non-tax deductible debt, the tax office just goes “I see what’s going on under here. The purpose of the loan wasn’t for investment. It was actually for a private purpose, therefore we will not allow the interest to be deductible.” So to answer the question, you can do it, but it’s not gonna give you any benefit.  

Ben Kingsley
No, effectively you’re going to have the same debt and it’s still going to be in the same position where it is effectively non-deductible debt. The other classic one that people do here, Bryce, is they release equity from their investment properties or their family home or whatever it may be, and then turn that into an investment property and then say: oh, no, no, no, that property’s an investment property now and I release the equity out of that to put a deposit down for my new upsized family home. Surely I can claim that because it’s against that investment property. No, purpose of funds test – in terms of what it does, that money is still non-deductible. So be very careful. People just think that they can pay loans down and then release the money against all that, and that’s going to be deductible? Not true.  

Bryce Holdaway
Love it. Ben, beware of pollution. So this is often something that people don’t think about. So for example, let’s say you do everything by the book. You set up a loan, it’s for investment purposes only. You’ve got a redraw facility Ben, and what happens is you think: well, with that redraw facility, I’m going to put all of my income into the redraw facility, and for five days, I’m going to have all the interest benefits of that. And then on a Thursday, I’m going to pull my cash out and pay for the groceries.  

Problem: The pulling out of the money just changed the purpose of the loan. You have just fully polluted that loan. So it was initially set up with an intent for investment, and the fact that you parked some money there and pulled it out for groceries at the end of the week; you have just polluted the loan. You’ve just made that loan very complicated, which is why an offset facility is cleaner and avoids the pollution over a redraw facility.  

Ben Kingsley
And while we’re at it, Bryce, and we’ve talked about this before, the other great pollution killer, or basically the interest deductible killer, is lines of credit. I get $100,000 line of credit, I use $80,000 for investment purposes, and $20,000 to buy a car. 

Bryce Holdaway
Ooh I like this one. 

Ben Kingsley
I then start paying off that car thinking that I’m paying off that portion that I took out for the car. Tax office doesn’t see it that way at all. The first $20,000 that you put in there is actually paying off the $80,000 investment debt. So this is another example of where an investment-savvy mortgage broker will separate out potentially a small amount for personal use and separate that in a different loan split for investment use. You can have multiple splits. It obviously requires a little bit more understanding and management, but ultimately it’s as simple as using your MoneySMARTS. Everything goes into that primary cap.  

Doesn’t matter if you’ve got a hundred loans under that; if one of those loans is for personal use, you’ve obviously got to pay that off. But it’ll be drawing that money from the primary account, exactly like all of the rental income you’ve got coming from all your properties will be going into that primary account. So there’s one central transactional account in which all of that money is going to be serviced from.  

Bryce Holdaway
Don’t pollute, Ben.  

Ben Kingsley
Don’t pollute, Bryce. At the end of the day, no mortgage broker should be giving tax advice. And here, we’re not giving advice, we’re just sort of saying these are the pitfalls. These are the challenges around that, so no one should be sitting here saying I heard this and I’m going to action this without actually seeking independent advice from a tax accountant. 

Bryce Holdaway
Foundational underneath that discussion Ben was cross security versus standalone, so the good thing is we were talking then about standalone options.  

Ben Kingsley
Yes. 

Bryce Holdaway
But making sure you don’t get the wrong standalone option, particularly for pollution. So great question Dean, thank you for that. Let me quickly get another one for us Ben. 

 

385 | THE GREAT AUSTRALIAN DREAM – How to make it more affordable?

Ahh yes, The Great Australian Dream. 🇦🇺☀️🏖️

Great beaches just a stone’s throw away, endless sunny days and the ability to own a large house on a quarter-acre block of land (With enough space to invite all your mates down for a barbeque on the weekend!)…

But while this dream has survived over the years, its accessibility is another thing entirely. 

And it has not gone unnoticed!  

A recent 2022 inquiry published by the Standing Committee on Tax and Revenue addresses this very issue… 

Titled The Australian Dream: Inquiry into housing affordability and supply in Australia, it provides a list of suggestions on…

How to make The Great Australian Dream MORE affordable!! 

 And today, we’re unpacking all 16 recommendations from this report!!  

There’s all the good stuff, like…. 

How can the Federal AND State Government play a bigger role in supporting those in need?!  

Is removing stamp duty actually a good idea?!  

 What policy is a good policy for land and house taxes?  

We’re also getting some blasts from the past as we look back at Australia’s history to inform us where our future should go…  

Like what the Menzie Government did to increase house ownership post World War 2…   

PLUS, see the image below to understand Ben’s section in “What’s Making Property News?” this week.  

Source: Seven News

(It’s one of those stories which prove EXACTLY why you should hold out for the long-term!)  

So strap in folks, we’re taking a hard look at our current property market and what NEEDS to change!!  

Free Stuff Mentioned 

Here’s some of the gold we cover… 

  • 1:50 – Grow silently, folks!  
  • 6:35 – How was The Great Australian Dream was born?  
  • 8:39 – Is Australia able to provide affordable stock anymore?  
  • 12:16 – #1: Changing the NIMBY-ism mindset 
  • 15:42 – #2: Cutting the Red Tape  
  • 20: 51 – #3: Cash incentives for state and local governments  
  • 23:45 – #4: More housing for the vulnerable  
  • 28:47 – #5: What can State Govs do to support those in need?  
  • 31:16 – #6: Discount-to-market vs. rent-to-own affordable housing 
  • 31:50 – What the Menzie Gov did to boost H___ O_____… 
  • 34:44 – #7: Using Super as…house security?!  
  • 39:23 – Ben has a controversial opinion on this!  
  • 40:28 – #8: No changes to N____ G___?!  
  • 43:09 – #9: The Argument for Removing Stamp Duty  
  • 46:00 – #10: Hello…Land Tax?!  
  • 46:39 – #11: The Government Sting on Developers  
  • 50:32 – #12: Reviewing the Build to Rent policy  
  • 53:10 – #13: Changing Lending standards 
  • 55:10 – #14: The RBA’s role in housing (And if that should change!)  
  • 56:40 – #15: This one’s a no brainer, a big “YES!” from us  
  • 57:14 – #16: Support the concessional loans!  
  • 59:28 – What Labor thinks of this report… 

And… 

 

384 | Budget Wrap – Your Questions Answered!

Yep. You guessed it. This week’s topic is all about…

The 2022-23 Federal Budget!!  

And today, we’re unpacking what’s in it, who the winners and losers are, and answering your burning questions about the Budget!

We’re looking at:  

(We’ve got two really great questions about this at the end of the podcast, so stick around till then!!)  

PLUS, we’re unpacking interest rates and inflation! Ensuring generational wealth! Rising cost of living! Wage growth!!

If you can’t tell folks, this one’s PACKED to the brim with information and we’re very excited to be diving into it today.  

Tune in right now for the gold!  

P.S Thank you to all our listeners for these fantastic questions – it’s been fun picking our brains.  

Got more questions? Send them to us through our Speak Pipe (Click the tab on the bottom right side of our website)  

P.P.S Questions are listed further below👇 Enjoy! 

 

Free Stuff Mentioned 

 

Here are the Questions We Answer…

Luke on Regional areas 

“What areas are considered regional?”  

Char Williams on the Expansion of the Home Guarantee Scheme for First Home Buyers 

“Does the federal budget help property investors? Also, will the expansion of the home guarantee scheme for first home buyers just continue to increase house prices due to lack of stock?”  

Dan Coletti on If Budget will help Cost of Living 

“Hey Benji and Big Brice 🤭,

Would a question here trigger a start and build course voucher 🤷🏼‍♂️🙋🏼‍♂️🙏😉?

So here goes- will these budget commitments to “help” in the cost of living, drive a false economy and therefore enacting a potential for a premature interest rate rise and amount.”

shaunjb_ on RBA Interest Rates  

“Could we expect the RBA to respond by increasing rates earlier than anticipated due to some of these announcements?”

Positive.jules on Consequences of Government Backed Schemes

“Thoughts on the potential consequences of these government backed schemes that could push first home buyers into a negative equity. A position I imagine at current times isn’t even seen as a risk to many getting into the market with low deposits and assumed continuous growth as seen in the hot market.

Love ya work boys and GO PIES! #piesflag2022 #believe”

Luke Keegan on Creating Generational Wealth  

“What can i do now to ensure my young children (1 & 3) will be able to have a home in adulthood?”  

Brendan Mutsaers on the Impacts of the 5% Government loan 

“Will all the backing of government with 5% loan or less lead to poor quality borrowers and higher defaults? Thinking seeds of sub-prime loans.” 

Danielle Shacklock in response to Brendan Mutsaers’ Question:  

“I got a 5% loan as a single mum. Brought a new SUV, all new furniture, invest in shares for my kids invest in my super and have paid 10% of my home off in under 12 months. Onto the next. I put extra into my home loan and brought smart. 

I am wanting a holiday home next. I don’t think all 5% loans are set for failure. If I default on my home with the rental crisis I risk homelessness as there’s no rentals available anywhere ever. 

I’ve already been in 12 

Months and have now kept my stamp duty waiver. 

Just because people secure these loans doesn’t automatically mean they can’t manage money. The onus is back on the person lending not the lenders. 

Interesting question.”  

 

Here’s some of the gold we cover… 

  • 3:00 – What Ben and Antonia Mercorella’s covered in their recent PICA Webinar 
  • 5:57 – Are you avoiding taking real action?  
  • 7:52 – How Australia is faring after coming out of COVID-19… 
  • 13:40 – The Budget Headlines (Who are the winners and losers) 
  • 26:55 – The Winners in Property: The 3 homeowner guarantees and housing affordability  
  • 32:10 – Refreshing stock in the bush 
  • 35:00 – Insurance and fire and flood support 
  • 37:30 – A boost in the infrastructure and tourism industries
  • 40:15 – The Losers in Property: Why our S___ should be paying for build to rent programs!  
  • 41:42 – Q1: What areas are considered regional?  
  • 42:59 – Q2: The Expansion of the Home Guarantee Scheme  
  • 45:54 – Q3: Will the Budget help Cost of Living?  
  • 49:50 – Q4: RBA and Interest Rates 
  • 52:30 – Q5: Consequences of Government Backed Schemes 
  • 54:21 – Q6: Creating Generational Wealth 
  • 56:25 – Q7: Impacts of the 5% Government loan 

And… 

  • 1:01:53 – We love the Live Text!  
  • 1:04:02 – Top #10 suburbs threatened by….C____ E____! 

 

195 | Property Bubble or Property Balloon?

Folks, no doubt you’re aware there’s been a shift in the property market.

House prices have dropped. This weekend’s Auction Clearance Rates here in Melbourne were below 50%. So it’s obvious that Sydney and Melbourne have come off their peak.

And back in Episode 66 (over 2 years ago now), we warned you that Winter was Coming… Well, let’s just say “Winter is Here”.

So where’s the good news? And what is a Property Balloon? 

Today we’re going to go “up in clouds” to see the 30,000ft view of the marketplace. We’re going to flashback to the last boom and show you what went down. We’re going to tell you how the correction’s playing out on the demand side and the supply side.

And we’re going to share with you The Big Switch.

So if you’re interested in the minor issues, the headwinds and the potential solution for the current property market… we’ve got over an hour of gold coming your way!

 

Folks, if think your cash flow story might need improving, don’t forget to take advantage of our free Money S.M.A.R.T.S Platform!

And, don’t forget our loyal listeners are able to Get 20% off our new book – Make Money Simple Again 🙂

 

Here’s what you’re in for…

 

194 | Seven Tips to Trap Your Surplus Cash

Folks, have you ever wanted to trap surplus cash and have more money?

If you want to get your hands on the tips to do exactly this, then this is the episode for you! Because coming your way right now are the 7 Tips to Trap Surplus Cash!

Did you know: this will take us to over 100 money management tips! ‘Cos there are 95 tips in our book, Make Money Simple Again 😉

For the folks who haven’t got a copy of MMSA, you can head to our homepage (thepropertycouch.com.au) and pick up a FREE chapter of the book!

CLICK HERE for the FREE Chapter of Make Money Simple Again (RRP $29.95)

 

And just a quick shout out to the countless folks who have joined our MoneySMARTS platform to help manage their own money, and get financial peace in less than 10 minutes a month — let us know what you think!

For those who might be struggling to get pass the Google Authenticator stage (which is there to protect your security and anonymity!) Ben goes through this in today’s ep. Otherwise, please send a screenshot to [email protected] and we’ll sort it out for you!

We’ve also started a new Facebook Group called Make Money Simple Again, so we can keep sharing money management tips with listeners who ask to join! Ben promises to jump on once a week to answer any money management questions you might have, especially if they’re about the MoneySMARTS platform.

  1. CLICK HERE to join our Facebook Page – Make Money Simple Again
  2. CLICK HERE to get FREE Access to The Property Couch’s MoneySMARTS platform
  3. CLICK HERE to get 0ur book – Make Money Simple Again

 

PLUS, could you be The Property Investor of the Year?

Your Investment Property Magazine is on the hunt for Australia’s Investor of the Year!

If you think you’ve got what it takes to win (up to $20K worth of prizes, including a 12-month membership to LocationScore.com.au!), apply now!

There are three categories up for grabs: New Investor, Strategic Investor and Reno Investor — Entries close at midnight on Tuesday 30th October 2018.

 

Now back to today’s show!

Here’s what you’re in for…

 

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