Tax Tip 219: Debt Recycling v Borrowing Extra to Invest

Do AMP and Macquarie still offer the “best” product to facilitate this?

 

yes

 

See
Tax Tip 345: How Debt Recycling Reduces Risk Tax Tip 345: How Debt Recycling Reduces Risk

 

This would be ideal, but doing this whilst DR would be better no?

Please fix up if I'm wrong here.
If the homeloan is 300k with 300k in offset. If investing, options are

1. Run the offset funds through homeloan first and redraw homeloan to invest - interest deductible

2. Maintain existing homeloan and invest offset funds directly. - no interest deductible.

If rates rise - bad for both options but less bad for option 1 because a (increased) deduction can be made

If your investment tanks and is now worth 50k

Not too sure here but I guess less dividend return for either option - but less bad for option 1 because of deductions..

 

What makes their product better than say CBA?

 

flexibility (and rate!)

 

Thank you once again Terry!

 

How about if someone has the house in thier name and earns taxable income of 138k while their spouse earns taxable income of 45k. The spouse doesn’t have any property under their name. Wouldn’t it be best if they just invest in the low income spouse name? No debt recycling

 

No.
The owner of the property could onlend to the spouse and the spouse could claim the interest as a deduction against the income or capital gains of the investment.

In other words it is still possible to debt recycle with different entities.

 

Like this

Incorporating a Trust into a Strategy Recycling Debt Incorporating a Trust into a Strategy Recycling Debt

 

if the owner splits the loan, redraws and transfers funds into the spouse’s brokerage account, the spouse then invests that money. Will the tax office not ask questions? Since that loan is not under the spouse’s name but the investments are. How can they claim the interest on someone else’s loan.

 

Jeez this is getting complicated. It will probably cost a bit to set that up. I guess you are also at a greater risk of getting audited

 

You are overlooking the fact that prior to transfer of funds to spouse a loan agreement was made in writing. Why is a hubby not allowed to lend $$$ to wife ? Wives and husbands can each indepeendently borrow (and hold investments).

Of course devil is in the details. If the hubby borrowed money and transferred to a joint savings account and then wife moved it to broker account that could be a problem.

 

Spouse A would onlend to Spouse B under a written contract so the interest is incurred by B and the loan is under the name of B.
perfectly fine if done correctly.

 

Not really. Doing it properly will have a cost. Doing it wrongly will have a higher cost

 

@Terry_w @Paul@PFI
Thanks for the feedback. Will that loan agreement be for specific amount or can it also be an ongoing contract for future debt recycling ? Is that agreement enough or does one also need to setup a trust? Roughly how much does cost to set one up? Cheers

 

A trust isnt required. A loan agreement can be tailored by the solicitor and likely should address new loans under the same loan facility. I always find the key element is that the lender accounts for the loan just like a bank would, the borrower maintains the loan like a bank expects and these records are retained and maintained each month. eg real bank transfers and payments etc

 

Will this still require Spouse A to split loan and redraw funds directly into the Spouse B’s brokerage account? Can Spouse B then send dividend income into Spouse A account for further debt recycling by Spouse A?

 

@Terry_w @Paul@PFI also with a loan agreement will spouse A need to add interest payments received from spouse B to their taxable income?

 

I

Yes, but they could deduct, potentially, interest paid to their lender.