Loan Structure - Splitting Mortgage

Discussion in 'Loans & Mortgage Brokers' started by Kid hustlr, 27th Sep, 2018.

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  1. Kid hustlr

    Kid hustlr Well-Known Member

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    Hi,

    I'm trying to understand what level of flexibility there is around splitting a mortgage for a PPOR.

    As an example:

    - I have a company structure and personal structure.
    - I need to borrow 500k to fund the purchase of a PPOR
    - The PPOR will be bought in the personal name
    - I have serviceability to easily cover the loan

    Am I able to structure the loan in a way so that 250k is borrowed in my personal name and 250k is borrowed through the company? In both cases the PPOR is the collateral.

    My understanding in doing this is that the interest cost in the company structure are tax deductible. Is this correct?

    Does anyone have any experience in this area?

    Thanks in advance - enjoyable forum
     
  2. Terry_w

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

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    why would you want to do that?

    Its possible.

    But on what basis could the company claim the interest?
     
  3. Kid hustlr

    Kid hustlr Well-Known Member

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    My understanding is(was?) if the loan is held in the company then the interest would be tax deductible.

    Based on your reply I gather you are saying that given the nature of the loan is to buy a PPOR, regardless of where the loan is held the tax treatment will be still be on of a PPOR?
     
  4. Peter_Tersteeg

    Peter_Tersteeg Mortgage Broker Business Member

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    The purpose of the money is to buy a PPOR. That's not a tax deductable purpose regardless of how you borrow the money.

    I can't imagine a lender would lend money to a company for your PPOR anyway.


    Something to consider:

    If you're running a home business, you could rent part of your PPOR to the business. That may allow the business to pay for a portion of the utilities and other bills. It may also allow you to claim a portion of the interest on the loan. The company would have to actually pay the rent and there would be CGT implications later. You should discuss with your accountant if you're running a home based business.
     
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  5. Terry_w

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

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    Have a look at s 8-1 ITAA97. Interest couldn't be deductible.

    Furthermore, there are many other disadvantages to consider too.
     
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  6. Kid hustlr

    Kid hustlr Well-Known Member

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    Hi Terry & Peter

    Thanks for the feedback.

    Terry, I'm currently working through your posts regarding debt recycling - very informative
     
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  7. Kid hustlr

    Kid hustlr Well-Known Member

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    Hi,

    Based on my reading of the tax tips threads I have a new example. I must admit there is a level of detail in some areas which has gone over my head however my example is relatively simple (I think!). I feel I can manage my situation without the need for splitting loans of complex borrowing facilities however I want to ensure I have the concepts correct.

    Example:
    - PPOR Purchase to the value of 1m
    - Borrowing Capacity of 800k
    - Initial Deposit of 500k
    - House is bought in personal name however I also have a company structure used to buy and hold shares

    I buy the PPOR and do the following:
    - Use the deposit of 500k and borrow 500k in personal name
    - Set up a second loan in the company with the value of 300k using the home as collateral

    Please confirm:
    - the company loan interest will be tax deductible assuming I use the funds to buy shares
    - If i take the funds out of the company and pay down the PPOR debt the interest would not be tax deductible

    Other:
    - Is this a standard set up or are there specific lenders/institutions I'm better off speaking with
    - Can I expect the interest rate on both loans to be the same
    - Is there anything obvious I am missing?

    Really appreciate the feedback - this portion of the forum is hugely beneficial I'll be passing on it's details to several friends over the weekend.
     
  8. Terry_w

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

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    Firstly, why the heck would you want to buy shares in a company?

    If company borrows to buy income producing shares the interest could be deductible.

    How are you getting money out of the company? If you borrow from the company the interest could not be deductible and if you are receiving a dividend there is no interest anway so nothing deductible there.

    No this is not standard, I specialising in structuring and have never seen anyone set up like this.
    No interestt rates will be different.

    You are missing heaps
     
  9. Kid hustlr

    Kid hustlr Well-Known Member

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    My replies in red

    Appreciate the help!!


     
  10. Terry_w

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

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    Consider a company as trustee of a discretionary trust and bucket company. You get the best of both worlds, 50% CGT and income tax at company rates.
    I have written a tip on this in the legal section.