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Loan splits and rounding

Discussion in 'Accounting & Tax' started by dabbler, 23rd Sep, 2015.

  1. dabbler

    dabbler Well-Known Member

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    Hi All, not done this before, about to split an existing split loan, however, the new lender only seems to round things up or down to even amounts , so no hundreds or cents.

    They have proposed a loan, but have rounded up, this means in future you cant just take the interest amount paid, as I think I know the answer already.

    So should I have them change it to round it down so accountant does not make an error and can use the full amounts in any calc

    It will mean by rounding down it may be 1k that will not be deducted.

    What would you do ? What is best, up, down, or just make sure accountant works of original loan amount/s.
     
  2. Jamie Moore

    Jamie Moore MORTGAGE BROKER - AUSTRALIA WIDE Business Member

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    Prob just round it down to the lowest $1k - the interest deductions wouldn't be much.

    Cheers

    Jamie
     
  3. Peter_Tersteeg

    Peter_Tersteeg Finance broker and strategist Business Member

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    This is potentially another one of those scenarios where the ideal solution according to the ATO and the lawyers is different in practice from that the banks will allow you to do. I've already had this conversation twice today with difference clients.

    It's an imperfect world, you'll just have to round it down to what the bank will accept. :(
     
  4. dabbler

    dabbler Well-Known Member

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    I was told it was done this was as at settlement there would be more owing than the loan amount, but I was thinking it could be the other way too if it settled the day after I just made a payment (both existing loans are paid within 2 days of each other)
     
  5. dabbler

    dabbler Well-Known Member

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    Thanks guys, that is exactly what I was thinking, prefer to be under than over.

    I will watch this in future and make sure all are rounded down if all banks do it this way, will prevent mistakes/headaches later.
     
  6. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Example
    When refinancing loans the borrower will estimate the amount of the loan at a future date - the estimated date of settlement. The settlement date will rarely be the date that is estimated so loan amounts will differ as accrued interest is added to the loan.

    Q - What happens if you get the estimate too high. e.g. say the loan refinance application is for $423,000 but when it eventually settles the original loan has reduced to $421,000?



    Technically you would be borrowed $2k extra and technically this will now be a mixed purpose loan. So try to get the amounts as close as possible.

    If there is extra money borrowed you can use this money for expenses related to the property such as rates etc. It won’t be perfect as any extra funds are likely to end up in a savings account. But you can improve your chances of not running foul of the ATO by making sure any surplus funds go into a clean savings account before using them for expenses associated with the property. Or you could deposit the surplus funds back into the loan account.

    However I don’t think the ATO will be too harsh on these sorts of things.
     
  7. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    I would prefer being over rather than under where the refinance relates to an investment loan - every extra dollar helps.
     
  8. dabbler

    dabbler Well-Known Member

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    Jamie, Peter, Terry, thanks for your answers.

    My poor broker, I think I may make life easier for him, I will find out if I can re adjust with no fees after settlement. I can see the logic and reason for covering interest when comes settlement time.

    What I will do, is get 3 accounts, 3 splits, the first 2 will have no funds in respective acc as they are existing loans, but when I draw the third split into it's own account, I could transfer a nominated amount that will match the difference & then use those funds to pay for interest or rates to which that loan is specifically related, so accountant can take loan at it's value.

    Part of my thinking to ideally have them the same, is it also makes it easy to know what went on 5, 10 or whatever years later, not being 20 anymore has it's dis advantages :)
     
  9. dabbler

    dabbler Well-Known Member

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    Yep, every dollar helps, everyone has long pockets and short arms at the moment, there will be no error in my favor I am sure ! come to think of it, errors usually are never in favor from lenders, funny that :)
     
  10. Paul@PFI

    Paul@PFI Tax Accounting + SMSF Business Member

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    The ATO would never bother with such a trivial variance to the principal sums. These would then give rise to the interest deduction...So lets assume it was $100 out. The full year interest would be affected by $5 at best. They would look at the former loan and the new splits to see a refinance and just leave at that. If its was thousands they would query the difference if its greater, not less.

    Its just like when putting numbers ina return - The technical rule is to ignore cents - These can add up and ATO would never address a trivial variance. It adds to their job.