How I Financially Structured my Portfolio to Maximise Cash flow & Tax Deductions along the way.

Thanks @Rixter for the great post, and @Terry_w for your contributions.
Just a question for both of you if you don't mind. I'm currently changing my loans and would like clarification.

I have no personal debt but am retiring soon so want to draw money out to live on (portfolio is CF+)

With one bank have loans and a LOC where rents go in and interest and all expenses go out. This is neutral now so no claiming of interest. I also changed 2 rent rolls to be paid into my personal account. I'm assuming that's OK?


But with my other bank I have loans and one account that rents go into and interest goes out (that's it). The problem is, it's building up (nice problem to have I know).
My idea is to make this an offset against one of the loans and change it to personal so I can draw the excess money out to live on.

Then set up another offset against a different loan and dump some cash into it. This in theory won't be touched unless I decide to purchase again.
Does that sound right?

I hope that makes sense. Thanks for any input.

 

TB - assuming the cashflow is not enough to love on I would suggest you seek tax advice about borrowing to pay the interest so you can then live on the rents. This way you will be able to deduct the interest (if structured property).

If it is enough then just pay all rents into an offset and pay the loan from there. I wouldn't be paying rents into a LOC is it will be a mixed purpose loan and you will have interest deductibility problems.

 

You want to make sure (as TW stated) you do not have any personal & investment debt mixed that the interest is being claimed on.

Revisit my flow chart below to see how it's structured to keep personal & investment debt separated but still able to claim the interest on the investment debt for IP expenses and IP loans.

If you are CF+ can you channel all your rents in a personal offset account as shown and then use this to withdraw from to possibly fund your lifestyle?

 

It will be mixed purpose if rent is going in.

 

What do you mean? There's no interest to claim. Nothing claimed on any IP as it's not in deficit.
Everyone has rents going in somewhere.

 

Ok, if you are not claiming the interest on the LOC then there will be no mixing issues = it will be mixed, but not a tax issue. But you are potentially losing out if you have all your cash tied up and need to withdraw from the LOC in the future.

by using an offset instead you could be gaining more deductions.

 

Agree...here..the ATO will not care if you change the LOC to personal...the issue is that it was still originally an investment LOC. Do not mix these two...the ATO may take a dim view and disallow all deductions...if this is the case if they audit you.

You are much better to establish offset accounts..as these are technically transaction accounts which allow interest offsets you are in the clear. You are not putting money directly into the mortgage account and then pulling them out...which is what you are doing with investment loan LOC or Redraw.

If you are with the CBA and St George I believe you can just set-up a Offset against any loan retrospectively.

 

As I mentioned the LOC used to pay interest and running costs is running neutral so no money to recall (well a few thousand backup) or nothing to lose out. No cash tied up there.

As I mentioned i have just set up an offset to park cash. That is what i was asking about.

This is EXACTLY what I said I was doing in the first post.
I am NOT pting money in or drawing money out of that LOC. It just feeds itself.

 

I still don't see why you would do that. Why not build up cash reserves?

 

Looks like you have answered the question yourself.....if there is any doubt the only protection you have a private ruling or a really good accountant.

Structuring is far more important...and it should be done very early on....

Another thing is the ATO will look at the source of income to fund lifestyles...so if you have large income outside of properties easier justify how you fund your lifestyle..if not..will be interesting what happens to you in audit. As they have more powers than the AFP...it is up to you to prove that you are not guilty.

 

Don't know why I would do what? I had a couple of LOC's. The one that the rent goes into etc I transferred the limit out to another LOC. It's now nearly empty and it's my working account.
Why do you assume I don't have cash reserves?
In hindsight I didn't top up as much as I should have but I have enough cash reserves plus money in offsets.

 

No, I mean deposit rents into a LOC and not an offset?

 

I have even made a thread about it here
Tax Tip 84: Don’t Pay your Rent into a LOC

 

@Terry_w Yeah OK I see that but I had it set up years ago and just left it. It would be easier if it was an offset because I wouldn't have to worry about how much money was in it. Before I had to transfer money when it was short.
Took me a while! LOL!
I will ring the bank and set up an offset with that bank and change it over, as I don't have one with them. It will be easier when I'm on the road too as I won't need to keep checking accounts.

Thanks.

 

Another conversion to offsetism!