ATO "sign off" product?

Discussion in 'Property Finance' started by FXD, 17th Oct, 2018.

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  1. FXD

    FXD Well-Known Member

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    Hi finance experts,

    Recently came across a business claiming to have obtained ATO "sign off" for loan products that
    help save interests on PPOR by following:

    1) reducing the interest rate on PPOR, and
    2) shifting that interest liability to an IP loan with a higher interest rate.
    3) The overall interests liability situation remains the same for the borrower but more tax
    deductibility from IP loan
    4) PPOR and IP do not need to be cross collaterised

    My intention is find out if such lending solution are commonly available and accessible in the
    market out there to small fry like myself, or is it something more exclusively accessible to the
    people with very strong business income and large portfolio etc so that things are always
    negotiable in the business lending side?

    Obviously, if such lending solution is more accessible than I thought then I will have more options
    to consider.

    Thanks,
    FXD

    PS: I have intentionally leave out the business promoting such product and example scenario
    details/figures so as not to be mis-perceived as affiliated with the business and/or the original
    promoter of its product.
     
  2. Marg4000

    Marg4000 Well-Known Member

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    So what exactly is “ATO sign off”??
    Marg
     
  3. Paul@PFI

    [email protected] Tax Accounting + SMSF Business Plus Member

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    Firstly - Its a claim many make and needs to be checked.

    1. Is it a product ruling or a class ruling ? If its not I would argue its got almost zero application to your situation and cannot be relied upon. A private ruling is NOT something you can also rely on so ignore it unless they assist you to obtain one (which they may be unable to do)

    2. Does your situation EXACTLY comply at all times with the ruling ? If not its as good as reflex A4 white paper.

    3. Have you sought independent tax advice ? The promoter is probably NOT licensed to give tax advice and the ruling being peddled may comprise unlicensed advice if it a element of their sale. Be very wary. Most dodgy schemes promote a ruling which may have limited application of come with loans of "subject to" conditions.

    Its rare to find a product type ruling for a loan product that is different and that operates differently to all else out there to be honest. And it may come with the usual provision that the arrangement is subject to Part IVA which means it probably of limited effect. Its like the flim flam man selling a magic tonic to ease all ills otherwise. My BS radar is alerted whenever I encounter these things.

    I have seen a split loan with these features and it did have a ruling BUT it was subject to Part IVA if the arrangement is altered in the period to July 2020 or afterwards. Called "Loan Reducer" it also has a range of limitations in para (h) which MUST be clearly understood - These conditions sever the product ruling.

    PR 2017/6 - Income tax: tax consequences for a borrower being charged a discounted home loan interest rate calculated under Loan Reducer (Published on 21 June 2017)
     
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  4. Handyandy

    Handyandy Well-Known Member

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  5. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    Sounds like the 2 % PPOR loan product where we load up the Investment loans

    has a place depending on client needs and profile

    ta
    rolf
     
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  6. Peter_Tersteeg

    Peter_Tersteeg Finance broker and strategist Business Member

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    There's a few lenders that do this. I did an analysis on this type of product a while ago. I used the actual figures (loan amounts, interest rates) as described from one lender's website. I compared this to the rates and costs available through one of the big 4 banks and even took into account what the tax deductions might look like.

    This type of loan is significantly more expensive in most cases. You do pay off your home quickly, but the cost of the investment portion is often significantly more, even with the tax benefits considered.

    These sort of loans are a sales pitch IMO. People here the words, "Tax deduction", and think it makes up for the extra cost but rarely take the time to actually work through the numbers themselves or with their accountant to properly understand the outcome. The spreadsheets shown to people are designed to support the sale.

    In some cases these loans do work, but please make sure you understand the real figures and real outcomes.
     
  7. FXD

    FXD Well-Known Member

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    Good point Peter, and thanks everyone who chimes in.
    I guess given the current credit crunch, 2% loans can really sell LOL.
     
  8. Terry_w

    Terry_w Mortgage broker licenced 4 tax/legal advice Business Member

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    I am a tax lawyer specialising in deductibility of interest and also a mortgage broker and I have never used such a loan for either myself or a client, despite being accredited for many years.
     
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  9. Gill Bates

    Gill Bates Member

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    I heard about his on a Switzer podcast about a year ago .... , they called it a "pivot loan". At that time I though they had patented it or something .

    Googling pivot loan turns up lots links .....
     
  10. FXD

    FXD Well-Known Member

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    Interestingly, it's the exact same PR 2017/6 Paul you've indicated that this other promoter has
    quoted which clearly shows "Loan Reducer" :)-)), except that the promoter has a different naming
    for it.

    I guess the product is after all accessible through different intermediary/broker?

    This one (on the investment side of loan) caught my eyes and it's probably a consent
    for the lender to charge when it sees fit:

    "The ceiling on the rate of interest: • is set at 4.57% above the RBA cash rate as at 1 July 2017", which translates to 6.07% based on current cash rate, ouch!

    Hopefully someone on PC may have real experience and may share the actual rate for
    investment loan that are being charged.

    Para (e) also limits the PPOR rate to 2 years I guess not dissimilar to honeymoon rate.


    Cheers,
    FXD
     
    Last edited: 17th Oct, 2018
  11. FXD

    FXD Well-Known Member

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    Melbourne, Victoria
    Your are right man, it did turn up quite a few others, each claiming the great offer is only available
    through their respective biz :)

    Cheers,
    FXD
     
  12. Terry_w

    Terry_w Mortgage broker licenced 4 tax/legal advice Business Member

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    You will have to consider whether the product ruling could apply to different promoters.
     
  13. tutes

    tutes Member

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  14. Terry_w

    Terry_w Mortgage broker licenced 4 tax/legal advice Business Member

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    White label product rebaged with different branding