Tax deductability on loan

Discussion in 'Accounting & Tax' started by VanillaSlice, 13th Nov, 2019.

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  1. Westminster

    Westminster Tigress at Tiger Developments Business Member

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    Gotcha, if there is enough security in the land then yes it's possible they will lend you the full amount of the construction costs.
     
  2. VanillaSlice

    VanillaSlice Well-Known Member

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    Since you have built alot in the past, do you have any strategy to save on interest cost during the build period when there is no offset facility available on the construction loan?
     
  3. Westminster

    Westminster Tigress at Tiger Developments Business Member

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    I've never used an offset during building. I consider the interest cost during building as part of doing business. My holding costs during a project is often around $50-100k and I make sure I have that before starting as part of the project.

    Do you want to save on interest as you don't want to be paying out cash or just trying to minimise holding costs?
     
  4. VanillaSlice

    VanillaSlice Well-Known Member

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    Hi Westminster,
    I'm trying to minimise holding cost I have cash parked in other accounts not doing much whilst construction loan interest is very high.... and contruction period could drag say from 7-12months long.
     
  5. Westminster

    Westminster Tigress at Tiger Developments Business Member

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    How high is very high? My construction loans are often only a little bit higher than a standard loan

    I’m not accountant but you might want to consider getting a LOC against the unencumbered block and use that for part or all of the construction loan if that had more favourable terms. I think that would still give you the deductibility that you want.
     
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  6. VanillaSlice

    VanillaSlice Well-Known Member

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    Thanks Westminster, the above sounds like a great idea! The interest rate is around 5.12% .... I'm just trying to explore different options available to structure my finance that's all and it's been fun. I actually enjoy doing this :) .... finding ways to make the most efficient use of the available capital and maximize deductibilty where possible.
     
  7. VanillaSlice

    VanillaSlice Well-Known Member

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    OK so instead of getting construction loan, I'm just going to pull out equity from another unencumbered home to fully fund the build. Low LVR, lower interest rate and with separate offset account to park cash in there since no deduction during build phase.

    Newly built IP will then be unencumbered in this case. Once tenanted I'll remove the parked cash in the aformentioned offset for personal use and the interest on the loan will now be legitimately tax deductable.

    I'll pull further equity from newly built IP to fund subsequent income producing assets and interest on it will also be tax deductable.

    Neater and legit solution ? :)
     
  8. Terry_w

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

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    That is probably a better idea.
     
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  9. VanillaSlice

    VanillaSlice Well-Known Member

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    thank you sir :)
     
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