Tax Tip 4: Borrowing to Pay investment expenses

Discussion in 'Accounting & Tax' started by Terry_w, 18th Jul, 2015.

Join Australia's most dynamic and respected property investment community
  1. Terry_w

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

    Joined:
    18th Jun, 2015
    Posts:
    41,672
    Location:
    Australia wide
    fritzsticker likes this.
  2. dean2012ad

    dean2012ad Active Member

    Joined:
    31st Mar, 2016
    Posts:
    28
    Location:
    NSW
    So if I have a LOC and use it for rates/insurance/repairs/renos for 2 Investment Properties, should I split the LOC in two from the start and allocate one split for one IP and one split or the other IP?

    For if I have to sell one IP at some stage, to avoid mess...?
     
  3. Terry_w

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

    Joined:
    18th Jun, 2015
    Posts:
    41,672
    Location:
    Australia wide
    Yes

    Otherwise you can have one and then split the LOC down the track into the relevant portions before you sell
     
  4. dean2012ad

    dean2012ad Active Member

    Joined:
    31st Mar, 2016
    Posts:
    28
    Location:
    NSW
    Thanks Terry,

    So I would just have to add up the relevant expenses for each and apportion appropriately..?
     
  5. Terry_w

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

    Joined:
    18th Jun, 2015
    Posts:
    41,672
    Location:
    Australia wide
    that would be the best way to do it. Just maintain a spreadsheet and it should be simple.
     
  6. onemediumcrabbisk

    onemediumcrabbisk Member

    Joined:
    4th May, 2016
    Posts:
    15
    Location:
    Australia
    Hi,

    I have currently used an LOC to borrow 200k, that is invested directly in shares.
    I have read through some of your Tax Tips(especially regarding paying deductible debt with CC).

    My first interest payment is due shortly. And currently only have the one CC.

    1. Should I apply for new CC to specifically pay the interest on the shares so i don't mix expenses?
    2. Alternatively,Should I capitalise interest? I do not have any cash-flow issues at the moment.
    3. OR, Could I pay the LOC interest with left over amount of LOC ( for. e.g. 190k shares, 10k undrawn)


    Thank you in advance.
     
  7. Terry_w

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

    Joined:
    18th Jun, 2015
    Posts:
    41,672
    Location:
    Australia wide
    cc = credit card?
    If you pay interest with a credit card you would be borrowing to pay interest.

    1. no
    2. depends on your circumstances, probably not.
    3. capitalise = see 2
     
  8. onemediumcrabbisk

    onemediumcrabbisk Member

    Joined:
    4th May, 2016
    Posts:
    15
    Location:
    Australia
    Firstly thanks for your quick response.

    I'm not sure i understand your answer to 3.
    What method would you suggest to paying the interest on LOC?

    Cheers.
     
  9. Terry_w

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

    Joined:
    18th Jun, 2015
    Posts:
    41,672
    Location:
    Australia wide
    cash
     
  10. Terry_w

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

    Joined:
    18th Jun, 2015
    Posts:
    41,672
    Location:
    Australia wide
    cash
     
  11. nothingman

    nothingman Active Member

    Joined:
    24th Feb, 2016
    Posts:
    33
    Location:
    Sydney
    are bank fees (once off or annual) related to setting up these new loans or LOC's deductible if the loan is to be used only for paying IP expenses?
     
  12. Terry_w

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

    Joined:
    18th Jun, 2015
    Posts:
    41,672
    Location:
    Australia wide
    Yes, if the LOC is used for investment purposes only. Set up fees may be claimable over 5 years though
     
  13. markson

    markson Well-Known Member

    Joined:
    14th Feb, 2016
    Posts:
    322
    Location:
    NSW
    Hi again,

    Can buyers agent fees be put straight onto the LOC for that investment property?
     
  14. Terry_w

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

    Joined:
    18th Jun, 2015
    Posts:
    41,672
    Location:
    Australia wide
    Yes you can borrow to pay the BA fee and these borrowings can be combined with other borrowings for the same property.
     
    markson likes this.
  15. markson

    markson Well-Known Member

    Joined:
    14th Feb, 2016
    Posts:
    322
    Location:
    NSW
    Thanks Terry.
     
    Terry_w likes this.
  16. kevilian

    kevilian Well-Known Member

    Joined:
    26th Aug, 2015
    Posts:
    66
    Location:
    Sydney
    Great tips! Thanks @Terry_w !
    so if I have an equity loan and associate offset account, and I have multiple IP,
    I should only use the equity loan for one of the IP ONLY, instead of paying all IP expenses, to avoid some mixed up issues later on, right?
     
  17. Terry_w

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

    Joined:
    18th Jun, 2015
    Posts:
    41,672
    Location:
    Australia wide
    ideally one loan for use.
    But sometimes this isn't practical.
     
  18. Ryan

    Ryan Member

    Joined:
    25th May, 2016
    Posts:
    17
    Location:
    Qld
    Thanks Terry, this is good advice and I will check it out.
     
    Terry_w likes this.
  19. Terry_w

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

    Joined:
    18th Jun, 2015
    Posts:
    41,672
    Location:
    Australia wide
  20. kevilian

    kevilian Well-Known Member

    Joined:
    26th Aug, 2015
    Posts:
    66
    Location:
    Sydney
    @Terry_w, another related question: where should I repay the interest for the loan? the offset account associated with the loan account (A), or a separate saving account (B)? since if I repay from the offset account A, does that mean I accumulate interest against interest repayment? since each time time the offset A balance is reduced by the interest to pay the loan?
    Hope my question is clear to you, and many thanks in advance!
     

Buy Property Interstate WITHOUT Dropping $15k On Buyers Agents Each Time! Helping People Achieve PASSIVE INCOME Using Our Unique Data-Driven System, So You Can Confidently Buy Top 5% Growth & Cashflow Property, Anywhere In Australia