Line of credit loan for investing on paid off ppor then if it becomes IP later

Discussion in 'Accounting & Tax' started by can do it, 21st Feb, 2017.

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  1. can do it

    can do it Member

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    Hi guys

    Just wondering if the following is possible

    Have a ppor that is currently paid off , approx current value would be circa 550 k

    Thinking of borrowing a line of credit loan against ppor

    What would be the max i can borrow would that be 80% of lvr and does line of credit loans come with offset facility and to calculate the borrowing capacity do they take my income into consideration as well ?


    If i invest those fund in shares , bonds etc - would i be able to claim any losses made on the funds invested
    Down the track if i rent out the property and start to receive rental income - can i claim the interest on line of credit loan as tax deductable

    Or thats not possible because the loc is invested in shares etc ?

    Thanks heaps
     
  2. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    LOCs don't have offset accounts.

    No you will never be able to claim the interest against rental income as the loan was used for shares. You may be able to claim it against the dividends.
     
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  3. can do it

    can do it Member

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    Thanks terry
     
  4. Ross Forrester

    Ross Forrester Well-Known Member

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    The security of a loan does not affect its tax deductibility. It is the purpose to which the funds are put that drives the tax deductibility.
     
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  5. can do it

    can do it Member

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    That's interesting to know that line of credit loans does nit have offsets , any specific reason for that

    Re the borrowing - would that be 80 % lvr or less than that when my income is taken into consideration as well

    In such a case where i cannot claim tax as its invested in shares if i lend it on commercial terms to a company which then pays me interest which i declare in my tax returns I assume in that scenario i can claim the interest provided that the lending is done on commercial terms as you advised previously

    If I had the above set up going then if ppor becomes IP after a while can I continue to claim interest for the money that i have lent out

    Thanks
     
  6. Paul@PAS

    Paul@PAS Tax, Accounting + SMSF + All things Property Tax Business Plus Member

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    You MAY be able to claim a interest deduction for funds used to purchase income producing shares while you have borrowed money for that purpose. Lending to the company so it receives assessable income - Yes but it sounds like a scheme. Tax advice on the motives and nature of this needs exploration.
     
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  7. can do it

    can do it Member

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    Hi Paul

    Not sure if my query is clear enough

    The company and its income has got nothing to with me neither its a scheme. its a well established business

    But the lending if at all happens that would be done to the company under proper commercial terms so that both parties are protected

    The interest which I would then recieve will be adding up to my payg and deductions as well

    The question is if my ppor becomes ip later when the above arrangement is in place

    Can I continue to claim interest on the loan

    Thanks
     
  8. Paul@PAS

    Paul@PAS Tax, Accounting + SMSF + All things Property Tax Business Plus Member

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    Possible. Possibly not.

    What security may you hold ? You may actually be unprotected