LOC to purchase via a Trust - mixing with own name

Hi All

What is the feasibility of using part of an LOC for an IP held in my name and then part for a different IP held in a discretionary trust (I'm the sole director)?

I’ve been using my CBA Line of Credit on my PPR for IPs in my own name. Now I have limited serviceability and realise I need to use the same LOC if I want to purchase further properties which are in a DT.

I understand the part of the loan to the DT is not tax deductible but is the initial amount quarantined?

How do I explain this to the tax man?

Thanks

 

You explain it by having splits so you can seperate the two different uses of the loan.

And get a loan agreement drafted between the trust and yourself to oncharge the interest.

 

Do you mean that you are the trustee for your DT? You could appoint a Pty Ltd as the trustee and create a loan, where the interest could be deductible. Get proper tax advice..

In any case it sounds like you've been mixing your LOC loan with multi investments. I'm guilty of this (and mixing with personal stuff too). What I should have done is split the LOC, now I'm in the process of paying it down to $0, then I'll split before touching it again. If you've only used the LOC for investing, you might be able to split off the portion that you want to loan to your trust. I'm not sure though.. @Terry_w is the expert in this area. If you search through his posts you'll probably find some discussion that is similar to your issue.

 

Yes it would be a mixed purpose loan as you have borrowed for 2 things using one loan account. You would need to apportion the interest or split the loan before borrowing - which is better.

You would need a written loan agreement with the trustee and you could claim the interest on the loan but the interest the trust pays you would be income.

 

I thought it might be as easy as apportioning the initial amount for the purchases in my name eg $250k out of an LOC of $750k?

Is a loan split simply ringing the bank and asking? I'm just afraid these days if they look to closely they might pull the LOC

 

Thanks Gents. I posted the further ques as Terry_W was answering.

I was recently quoted $1,500 for the loan agreement which seemed high (given its effectively between me and me).

 

If you are the human trustee of the trust then the loan agreement is unable to be made. You cannot lend money to yourself. A human trustee DT that own property is a terrible structural choice. If there is a company trustee then you arent lending to you.

I also picked up a comment in the OP that said : I understand the part of the loan to the DT is not tax deductible but is the initial amount quarantined?
No. The loan must be recalculated back to determine the original sum borrowed for the two purposes and apply all repayments are applied to each in the same %....Without a reasonable apportionment the deductible interest can be denied if the ATO cannot determine its not excessive.

 

ok thanks, to be recalculated back to initial withdrawal from the LOC for each separate entity purchase.

It is a corporate trust so ok - still wouldn't I be signing as both parties so not a lot of negotiation

 

A company is a separate legal person so you can contract with it.

 

Visited the local branch and splitting my existing viridian line of credit loan requires a full re-application. So instead of a simple switching request form it requires a full re-assessment as a P&I loan.

Might not proceed with the split this way as I'm concerned they could decline a new loan and remove existing funding due to new APRA restrictions ??