Tax Tip 13: Simple Loan Structuring Strategy

Thanks Terry.
Seems like this strategy kinda 'forces' you to invest so that you can reduce non-deductible debt.

 

This strategy can also be relevant where you don't want to invest further as you can convert investment rate loans into owner occupied rate loans

 

Hi Terry,

Question regarding loan structuring using PPOR redraw for IP.

PROP(spouse 1 higher earner):
split 1: 100k
split 2: 130K - 130k redraw available
split 3: 40K

IP(joint):
Value: 500k
loan: 400K
rest: 100k equity from PROP

You think that following structuring will work? Any other suggestions
Is there any issues with PROP on spouse 1 name and IP on joint name?

 

what following structure?
I suggest you get legal and credit advice as there are plenty of issues.

 

Hi Terry,

My question was, can I use redraw from PPOR to invest in IP property with details provided in the previous message.

 

Oh, the above structure? I misread it.

It could be possible. See my tax tip 1 about parking in offset accounts

 

Thanks Terry will go through parking suggestions.

As PPOR is only on my name but IP will be on both me and spouse. Is there any tax implications I need to aware of in term of usage of equity from PPOR.

For an example: suppose I used 130 redraw to buy IP. Is it true that interest on this redraw will be used only by me for tax deductions?

Rohit

 

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

 

Not sure how I can make this work for our situation ( Myself and Wife ) first home buyers, hope someone can help us making the right structure for future investments,

Our situation:

• House that we want to buy: $360000
• Deposit: $30000
• LMI: $1000
• Application costs $1000
• No stamp duty
• Roughly $355000, Loan 5% deposit - ( Can't find a lender that allows IO loans unless it's 20% deposit )
• Combined we will add to our offset account an extra $1000-1200 every week ( plus the $400-$450 P&I weekly repayments )

Objective:

• After 1-2 years buy a bigger family house and move in after 2/3 years, this first house is then changed to an IP

My question is how should we split the loan and what features (e.g redraw & offset ) the loans I will need to ask the bank/broker,

1. Split: 50000 - Owner occupied P&I Variable with 100% offset & redraw ( preferably IO )
2. Split: 55000 - Owner occupied P&I Variable with 100% offset & redraw ( preferably IO )
3. Split: 250000 - Owner occupied P&I Variable with 100% offset ( Due to small deposit not possible to apply for IO )

Then, if I understood properly, all our cash stays on the Offset linked to e.g Split 3 and when we have around $50000 saved transfer into Split 1 e.g $48000 and redraw to pay for the 2nd house deposit (maybe also split some equity from capital grow) changing the Split 1 to an Investment Loan IO ?


Is this logic/structure correct and a good approach to our objectives?

 

There is no right way to do things ( only wrongly).
But why would you want to split in this instance?

 

Hi Terry,

First of all thank you so much for replying,

To payoff the stamp duty and other legal fees? So we then have a bigger deposit available to avoid paying the LMI?

 

Structuring loans like I wrote about in the OP is really for debt recycling. If your case you will be buying a new main residence and renting the first one out so I can't really see a need to split the loan or pay it down. In fact paying down the loan will cost you in lost deductions in the future. I would be saving in an offset account instead.
But seek specific advice as I may have misinterpreted what you want to do.

 

Hi Terry

Sorry to hi jack this post, I have been reading through trying to understand this. I am about to refinance because my loan structure is **** and am interested how loan splits can help with investing in the future? My situation is I have a PPOR with 207000 owing, how could I do a loan split to help me invest faster?

Cheers

 

The first post in this thread explains...

 

Ok I think i'm slowly understanding. Once you can completely pay off a split you can then re use that money to invest but if you had one big loan it would be harder to do it and take longer. My question is how do the re payments work? Say split A is 25 k and split B is 182 k. Do they just get individually calculated? then you pile money into your offset attached to split A and pay that off faster

 

Sorry thats a lot of mumble, so in summary get as many splits as you can in order to invest sooner? is that the rule here

 

That clarifies alot of my questions , I've tried to seek advice from brokers and banks but they don't really take into consideration future tax deductions

So, in this case the best avaiable approach would be just one variable loan with 100% offset with capability to redraw? That way at some stage I can use the offset cash to pay off part of the loan and redraw it directly for the 2nd house deposit , ( assuming that I haven't redrawn from that loan in the meantime? ) so we can claim tax while the 2nd house is still an IP as we plan to move to the IP after 2/3 years and use the rent to add to the offset linked to the non-deductible debt as much as possible,

Does this makes sense or did I missed something?

 

Yes and yes, repayments will be based on the split limit over the term of the loan.

 

Really you only need a few splits.

 

I think you are missing something.
Why pay down a loan if it will be deductible in the near future?

And don't seek tax advice from a broker or bank. Or medical advice from a hairdresser