Tax Tip 12: Credit Cards and Tax Issues

Presume by this Terry, you mean credit card with no uncleared debt, ie a card paid off at the end of every month would be OK.

JB

 

It doesn't even have to be cleared at the end of the month, just at the time of the expense.

e.g you are in bunnings and about to buy a $300 toilet. You want to debt recycle so don't want to buy cash, but cannot access your LOC via any cards. Your coles myer cc has a current outstanding balance of $395.33 so you transfer $400 to pay this off via bpay.

You get to the register and realise it will take 2 days to pay off via Bpay so you go home, wait 2 days and come back.

Your card has nil balance so you pay $400 for a $300 toilet and then think you are safe, you can pay this at the end of the month by refinancing $400 of cc debt with your LOC. ie pay the CC with the LOC.

No mixing will happen - until you realise that the internet payment is due in 2 days and then you will have a mixed loan on the CC.

So best course of action is to refinance the cc investment debt immediately with the LOC.

3 or 4 days later it is back to normal.

 

Hi @Terry_w. I was just wondering are there any debit card products which could be linked directly to equity loan (e.g. to LOC)? In case such cards exist and if those only used for investment related expenses would this work?

 

Yes, good idea. I but I don't know of any such card off the top of my head.

 

Hi @Terry_w. I was wondering if the following would work?

I've got an equity loan with linked offset account (with zero balance in the offset). Problem is I need to pay $455 and I can't make transfers for lower than $500 from that equity loan account. Thus, I'm thinking if it is possible to transfer $500 to offset first, pay $455 from offset and than transfer back $45 to the equity loan account?

 

A bit messy, but the ATO would possibly allow it.

 

Thank you @Terry_w.

Btw, I checked with my bank (CBA) and they don't have an option to setup a debit card linked directly to equity loan. Would be great if they had something like this to make investors life easier.

 

I recall a discussion with a bank lending specialist who said that the card issuers (VIsa/ MC) see a offset as a loan account and its not allowed to have a debit card linked. He wasn't sure if it was card issuer or bank policy though. He mentioned that debit cards can be used for gaming transactions and that is part of the issue.

 

@Paul@PFI I have debit card linked to offset. Problem is they can't setup one linked to the loan account directly.

 

delete me wrong thread

 

@Terry_w I have acquired a credit card exclusively to pay for investment property expenses. I haven't incurred any interest on it yet, as it has a promotional interest-free period. But it does have an annual fee.
Would the annual fee on this card be tax deductible?

 

I dont think any lender would touch it. Responsible credit rules etc
I have seen a offset or savings with a debit card. A debit card linked to a loan isnt really a debit card is it ?? Its probably a Mastercard / Visa or similiar rule.. Imagine if the card could be used on a Tab account...Lender would get hung out to dry.

 

Yes provided the use is 100% but you still may need to apportion between relevant properties if it has bledned deductible use. Or claim at D24 on return.. I have a client with a high end Amex that is used solely for work related purchases, travel etc.

 

In a scenario where I have 2 x Investment Properties, can I put the expenses for the two investment properties on the one credit card?

Although it should be relatively easy to setup 2 x dedicated credit cards. I'm thinking a $4k limit per card with the balance paid off in full at the end of each financial year.

Whilst simpler to setup than a loan split, the main disadvantage I see with the approach is even low rate cards are currently 9%+. It will also impact serviceability calcs.

 

That would be a mixed purpose loan if there were expenses on there from each property at the same point in time. really you should then split this loan before refinancing. But I am not sure the ATO is going to argue over this small detail. Just pay both portions off at the same time and you would probably be right.

 

Hi @Terry_w, I wonder whether any credit card surcharge related to investment expenses will be tax deductible as well?

 

If it was incurred in relation to investment expenses then I don't see why not.

 

CC surcharges are treated exactly as if they are part of the original cost. Its not an add on. Treat as inclusive.

There is no tax invoice requirement or receipt requirement beyond the statement acting as one. Ditto foreign currency and conversion fees on a transaction eg card payment.

 

Thanks @Terry_w for this Wonderfull tip.

I have to ask this basic question , I don't have any credit card yet.

Does it makes sense to have any particular type of CC based on two different usages you told ?

Low Fees VS Low Rate

 

Depends on the circumstances. Interest rate wouldn't matter at all if you pay it off on time as you wouldn't be incurring interest.