Tax Tip 13: Simple Loan Structuring Strategy

If you have monthly fee for each split, then this will occur 5 times monthly fee. Am I understanding it correctly?

 

If you are with a bank that charges fees like that then yes. Nab is like this I think. $10 per month per split.

 

Yes, with NAB indeed.

 

They don't make it easy!

 

I'm about to set something like this up so I'm just trying to understand some of the finer detail.

If you need to pay down the loan before reborrowing, why would you have the offset against split A and not split E? Wouldn't it be better to have it all against split E and then just do a bulk transfer to pay it off in one hit? If it should be split A I'm assuming that once you have paid it off and then reborrowed you should move the offset to split B. Correct?

Also, when the split is first created and funds are still available, in order to claim the expense as a deduction you need to draw down the 50k then repay it, then reborrow to invest. Is this correct?

 

Hi Mintle

I like to have the offset against the smaller split first because the offset will help pay this one off sooner. Once it is paid off the offset should be changed so it is against the next split.

If you have equity from the beginning then you can drawn down into a separate account (any account really) and then pay back into the loan until you need it. Then borrow to invest at that point (i.e. redraw).

 

That makes sense. Thanks Terry_w your posts are very helpful

 

Does CBA charge for each split like NAB? I saw it's currently $8 per month. Not sure if it is for each split.

 

$10 per month, but waived under the package.

 

Hi Terry_w,

I've just refinanced my PPOR with this structure and want to make sure I use the structure correctly when I purchase the next IP. My loans have just been funded, and they look something like this. All loans are interest only and have their own offset which is where the available funds are currently sitting.

Split A - $200,000 debit
Split B - $25,000 debit. Split B offset - $25,000 available
Split C - $25,000 debit. Split C offset - $25,000 available
Split D - $25,000 debit. Split D offset - $25,000 available

I plan on using the smaller splits to pay deposits/renovation costs etc on IP's.

1. As I understood your previous advice, to make the interest on the splits deductible I would need to transfer money from the offset back into the loan, then redraw from the loan when I need it to pay expenses. Is this correct?
2. If yes to 1. am I able to transfer the money from the offset to the loan, then redraw the entire amount and place back into the offset, and make smaller withdrawals from the offset to pay invoices as I go? or does the redraw need to occur from the loan account when the expense is paid?
3. Given that there are funds already available, if I didn't pay off the split and redraw but were instead to transfer directly from the offset account to pay an expense on an IP would the interest on that be deductible? Or does it need to occur as per Q1?

Given that there are fees attached to the redraw but not the offset, and I will be paying smaller invoices as I go, I had hoped to be able to keep the entire sum in the offset and then transfer out as I need.

Keen to hear your thoughts on this.

 

Mintle, I have answered this in tax tip 1
Tax Tip 1: Parking borrowed money in an offset account

 

That you did, I must have missed that.... Thanks Terry.

 

Hi @Terry_w ,

I'm in a similar situation. There's very little equity in my PPOR and also unable to extract it due to LVR/serviceability issues. I have spare cash to fund purchasing costs for an IP. The plan is to split the current PPOR loan into multiples and use them for IP purchase as mentioned in this post. I'm planning to use BA and my understanding is that BA fees is deductible. Is there a benefit to include BA fee part of the split amount or is it ok to be paid from savings/offset account?

 

BA fees are a capital expense and therefore not deductible against income. But you could still borrow to pay them.. I wouldn't pay them from a savings or offset account but borrow to do so.

 

Hi Terry
Thank you for fantastic posts. Can I please clarify
So my best option is to source money for future IP purchase by releasing equity from an IP I own.
The structure that you propose here is for when option 1 is not available?
Thanks, E

 

Ideally you would not pay down any of the splits but to use equity to purchase new IPs. But where you are sure the main residence won't be a rental and/or where serviceability is tight this strategy will allow you to keep moving forward without having to re apply for new loans all the time (for a while anyway). This could be great where a woman is going on long maternity leave (or the bloke even).

 

Hi @Terry_w ,

Another question on the topic. Assuming a purchase of $400K property, below is the estimate of purchasing costs that I need to use for splitting the loan. Just wanted to get clarity which are claimable and which are not from the below list?
Purchase price 400,000
Deposit 10% 40,000
LMI 7,000
Stamp duty 14,000
Buyers agency 10,000
Legals etc 2,000
Renovation -
B&P 600
Depreciation report 800
Total 74,400

 

This is a different topic! most are capital expenses.

 

I heard a comment Effi Zahos made on Nine recently. She described a offset against a credit card.
Are there (m)any lenders who offer that ?

 

Never heard of that before. I imagine it would only be useful for those that don't pay off their cards each month. Never heard of Effi Zahos either