Strategy: Using AMP’s Master Facility to Debt Recycle

I understand the use of multiple splits on this product if investing in property, but if investing in shares only is more than one IO split really needed?

eg say 1M master limit
Loan 1 = PPOR 800k limit (drawn)
Loan 2 = LOC 10k limit (not drawn)
Loan 3 = IO 190k (all drawn to buy shares)

If I save up 20k in my offset and pay down Loan 1, this will give me +20k to borrow under the Master Limit. Can I then just draw an extra 20k from Loan 3?

 

You would need to reduce the limit on Loan 1 and increase Loan 3.
Where the ownership entity is the same different parcels of shares could be bought with the one loan. This could even be different parcels of the same shares. But it might be better to create a new loan for different parcels of the same shares as it might be easier to track if you are selling one parcel but no all parcels.

 

Depends on your circumstances. Multiple owners , including personal names or loans to other entities , loans for property deposits, loans for property expenses , loans for sole trader businesses, loans for non deductable investments eg non dividend paying.

 

Thanks Terry! That makes sense. I will be looking to never sell, so the simplicity of not having to create new splits appeals.

Does one need to fill in a form to shuffle the limits around? I would ideally set this up as a regular thing, e.g. every month when the principal is paid down I will pay in some extra % of my paycheck, and with a few clicks could invest in a mini parcel of shares.

 

Yes there is a short form needed.

 

It also takes time for them to process the form. I just completed this process with AMP recently and it took 5 business days.

 

It would be great if it was an automated online system to change splits around.

 

Thanks @Terry_w for this information. It has opened my eyes towards Debt Recycling.

I have one question here, if the PPOR loan is on joint name between husband and wife, and then they withdraw money, $50,000, from the loan account for investment purpose e.g. for buying dividend paying shares. Can the entire amount be invested in shares on one person's name.

If the partners on different tax brackets, the CGT or dividend payment would be more beneficial if the investment is done on the name of the partner who is on lower tax bracket.

 

Yes

Tax Tip 79: Interest Deductibility for 1 on title 2 on loans Tax Tip 79: Interest Deductibility for 1 on title 2 on loans

 

Debt recycling may be a required strategy for many brokers to master under the "best interests" requirements for future advice. Failing to pay down debt is frowned upon but electing to pay down non-deductible debt v preserving / maximising deductible debt may be a sound strategy as part of a broker portfolio of services.

Maxing out clients loans otherwise is not a best interests strategy.

 

Thanks @Terry_w .
Can individual take investment loan on one name and invest on other's name. I will explain the scenario below:

PPOR Loan - $550,000 (Joint Name: Person X and Spouse Y)
Cash Saving - $50,000

Person X Tax Bracket: 45%
Souse Y tax Bracket: 19%

Can they pay $50,000 of the PPOR loan and then withdraw $50,000 as Investment Loan on the name of Person X. Person X can transfer the fund to Spouse Y's share account to buy share on Spouse Y's name?

 

If the loan is in the name of X but Y is investing, X and Y will need to enter into a complying written loan agreement for Y to be able to claim the interest.

 

In my example, Loan is on Person X's name and Y is claiming the tax benefit. Your statement says, if Y is investing and Y wants to claim tax then Y needs to be in loan.

 

Y could not claim the interest if Y hasn't borrowed.

 

My scenario is different to what you have explained.
X is borrowing and claiming the interest as Tax Deduction.
Y is investing and paying tax on dividend and CGT.

But I understand that one can not do this. Thanks.

 

Yes that would not be directly possible.

But it is indirectly possible, where X had cash in an offset account on an investment property, X could make an interest free loan to Y. for example

 

But if X and Y are spouses, money/cash can be transferred between their accounts anyway without any tax complication.

 

This is really interesting fact that the money borrowed via investment loan on joint name, can be invested in one's name to reduce the dividend and CGT. But the deduction on interest paid on the investment loan can only be claimed 50-50.

 

There are tax consequences, and legal consequences of moving money to differrent accounts - whether spouses or not.

 

It is as if the second spouse is onlending to the first spouse, just that the ATO don't require a written loan agreement.