Hi Long time ago, I followed the guides on somersoft to structure my PPOP loans as follows: Residential loan: $100,000 Offset account against residential loan Equity loan (LOC): $0 (max credit facility $300,000) I have utilised $200,000 from LOC for anoth investment property deposit whose interest is tax deductible. So the current structure is as follows: Residential loan: $100,000 Offset account against residential loan Equity loan (LOC): $200,000 (remaining credit $300,000 - $200,000=$100,000) My banker and accountant advised me to restructure the loans as follows: Residential loan: $100,000 Offset account against residential loan New variable loan = credit facility = $300,000 New offset account against New variable loan:$300,000 - $200,000=$100,000 I wonder, with the new structure, if the new variable loan's interest is tax deductible?
I am not sure I follow. Did you just convert your LOC into a term loan, interest only? If so that would be fine. What happend to the $100,000 unused LOC portion? If you borrowed that and parked it in the offset I would say you could have issues. See my Tax Tip 1: Parking borrowed money in an offset account https://propertychat.com.au/communi...ing-borrowed-money-in-an-offset-account.1313/
To me it seems the same, except rather than a LOC you now have a term loan with $100k in the offset. It should remain deductible from my understanding. @Rolf Latham Rates most probably.
I can't tell the difference here. Looks like you've basically ended up with the same structure? Admittedly I'm due to drink another coffee so might have missed something. Cheers Jamie
You are probably better of with a split(s) in your original LOC to invest in something else or use it for non-deductible purposes
Seems like swings and roundabouts. You could leave as is and use remaining 100k from LOC for next investment and aportion debt accordingly come tax time. As Rolf said, why did they suggest the new structure?
The reasons: Personally, PPOP variable loan has lower interest rate. Accountant's reason, I am not quite clear if my accountant gave me a proper structure. She told me offset account should open for every loan account. However, my opinion, it seems that I redraw $100,000 from the variable loan and put it in offset account. It may cause the problem. As tax man will be concerned if I use the offset account for personal expenses. I just wonder if I use offset account for investment purpose only, this will remove the problem.
However, I cannot use up the LOC right now. I need money for development application in the next few months. Can I open an family trust account and transfer the money from term loan account? In this case, can term loan interest be deductible as family trust account is used for investment only?
Another option: 1. Convert $200K from LOC into interest only term loan. 2. Keep $100K in LOC What do you think?
Another question: In the same circumstance above, If I sell the PPOP and buy another PPOP, what is the best strategy to keep the LOC deductiable?
It looks like they're just recommending you switch from a LOC to term loan with offset for interest savings - nothing inherently wrong here. Banks are increasingly pricing LOC's higher and this trend will likely continue, so many people are moving away from LOC's unless they provide a specific benefit needed. In terms of keeping your LOC/existing investment debt secured against the PPOR deductible, you would need to move the debt to another security via a security substitution or refinance. To get this done you will need to have sufficient equity in another property - which if structured correctly *could* be your next PPOR.
