AM,

You misunderstand a bit here.

There are costs which you can claim and then there are interest on money borrowed to pay these costs which can be claimed.

Borrowing costs such as LMI can be claimed over 5 years or the term of the loan, whatever is shorter.

Interest on money borrowed to pay these costs can be claimed at long as it is incurred. If you pay $1000 in rates from the LOC there is no reason to pay this back in year 1. In year 2 you can borrow again and keep paying interest. The only time you would pay to pay down a LOC is after you have sold the property and the borrowings are no longer claimable or if you have paid off your personal debt and have spare cash lying around.

Here it is
https://www.propertyinvesting.com/forums/property-investing/general-property/4337829

I replied on that thread and he copied and pasted an answer from that to this.

I am not so mad after all.

Yes, sounds like your accountant has cost you thousands!

Asset protection is weakened by transferring assets. If you were to go bankrupt then transfers can be reversed under the Bankruptcy Act. To reduce the risk you need to consider transferring for market value with full payment and the sooner the better. The farther in the past the transfer the greater the protection.

It has to be for a reason other than for saving tax!

At the best you would only want to pay the interest on the LOC. Even better is talking to your accountant about not paying the interest at all and letting it capitalise – must be careful though.

If you can do this you can pay off your PPOR faster (although the ATO doesn't see this as a legitimate reason to capitalise interest)

If you sucked out equity for the next PPOR the interest wouldn't be deductible.

You are better off moving the LOC to the new property, otherwise you will be worse off with tax as if you paid out the LOC then you would have less tax deductions and will end up with a larger loan on the new PPOR which won't be deductible.

Its a bit tricky, but it could be done. You would just be changing the security for the loan. Just make sure it is not paid out at any stage, or deductibility will be lost.

Hi,

I don't think you are doing it right and you shouldn't proceed until you do a lot more research. If you do it will be ok, but there are so many ways to enhance it to make it much better.

eg if you buy a unit for $200k and have a $100k loan with the bank, you then later buy a PPOR. This would mean you are losing $7,000 in tax deductions per year. Imagine the compounding effect of that over 30 years.

With the loans from mum I would recommend you do it all properly with properly documented loan agreements and direct transfers from her to you so you could prove it as a loan later on if necessary.

I think it all comes down to return.

With investment properties the idea is to leverage so parting with a small amount of money can lead to a very low return when things go well. Imagine if you buy a property that costs you $50 per week. Paying $50 into your home loan may save you 10 years off the loan and $200,000 interest. But $50 into a new investment property could lead to $500,000 in capital growth over the same period. In addition the rents increase and this $50 a week that it costs you will gradually decrease and it will be paying you money after 5-8 years. You can then use this income to pay off your home loan faster.

Then there is even a better way and that is to do both. If you have enough equity you can borrow any funds for your investment property and for the weekly shortfall. You can then put all your cash into the non deductible home loan. You get the benefits of both paying your home loan off early and having the investment property growing in rents and value

Hi Paul

Yes, the properties would need to be transferred to the trustee of the trust. Stamp duty and CGT would be payable at market rates.

If the trust needs to get a loan to buy the properties then the lenders will require personal guarantees from all trustees and/or directors of the trustee company (and maybe shareholders if these are different). The incomes and liabilities of the individual and the rent from the properties is taken into account.

Its a big move to do this so you need proper and careful advice.

The trust is not a legal entity, but the trustee that is the legal owner of property. So the trustee enters into agreements with tenants and other contracts.

If the tenant sues then the tenant will be suing the legal owner which will be the trustee in its capacity as trustee. The trust deeds will have clauses indemnifiying the trustee out of the assets of the trust. This means the trustee will be liable to pay, but will be reimbursed out of the trust's assets. If the trust doesn't have enough assets then the trustee's personal assets can be at risk. This is why it is a good idea to use a Pty Ltd company as trustee as a company is a separate legal person and generally the directors are not liable unless they do something illegal. Shareholders can't be held liable for company debts. If the trustee is not indemnified out of the trust assets then the directors of the trustee company can be held to be personally liable in some instances under the Corporations Act, s197 from memory.

A trust will need to do a separate tax return and if you have a company then ASIC annual returns and fees too.

So, if a company as trustee for a unit trust owns the property then the company will be the one contracting. It won't have any income and so must lodge a nil tax return and ASIC statements every year. The unit trust is the owner for tax purposes and this trust receives the income and claims the expenses. The units of the unit trust can be owned by your discretionary trust and any income from the unit trust can be distributed to the discretionary trust and from there to the lowest income earners in the family group.