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Finance structure

Discussion in 'Property Finance' started by melbourne171, 7th Sep, 2016.

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  1. melbourne171

    melbourne171 Well-Known Member

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    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?
     
  2. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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  3. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    why ?

    ta
    rolf
     
  4. Jess Peletier

    Jess Peletier Mortgage Broker - Australia Wide Business Member

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    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.
     
  5. Jamie Moore

    Jamie Moore MORTGAGE BROKER - AUSTRALIA WIDE Business Member

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    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
     
  6. JohnPropChat

    JohnPropChat Well-Known Member

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    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
     
  7. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    I cannot say it will remain deductible. You should seek tax advice before doing.
     
  8. Colin Rice

    Colin Rice Mortgage Broker Australia Wide Business Member

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    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?
     
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  9. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    I would suggest you use the money first and then convert the loan to an IO term loan.
     
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  10. melbourne171

    melbourne171 Well-Known Member

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    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.
     
  11. melbourne171

    melbourne171 Well-Known Member

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    I believe that this is the proper approach.
     
  12. melbourne171

    melbourne171 Well-Known Member

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    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?
     
  13. melbourne171

    melbourne171 Well-Known Member

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    Another option:

    1. Convert $200K from LOC into interest only term loan.
    2. Keep $100K in LOC

    What do you think?
     
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  14. melbourne171

    melbourne171 Well-Known Member

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    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?
     
  15. Corey Batt

    Corey Batt Finance Strategist Business Plus Member

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    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.
     
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  16. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Nope
     
  17. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Just substitute security