I wouldn't use a LOC on my main home loan either. Why not just an offset account? I hope you were not going to take the deposit for the IP from that LOC as you would rapidly lose deductibility, but still have a large loan.

Look at ANZ, Westpac, NAB for IO loans with offset.

Hello Jacqui

IO loans usually have the same exit fees as PI loans. Not usually any extra penalties or restrictions. IO loans are generally IO for an initial period (usually 5 to 10 years) and then revert to PI, or you can extend the IO period.

I don't like the sound of that misa account! Don't know about distinguishing it from the loan with deposits either.

I don't think you understand, fully, the tax implications of a LOC. They are very good for accessing equity, but for the main loan are not so good unless you just treat it as an IO loan. And if you do that then you might as well have an IO loan on the lower rate.

The tax implications are this (something i wrote before):
Every time you pay money into a loan this is a deposit.

Every time you withdraw from a loan this is considered new borrowings.

Deductibility of interest depends on what the funds borrowed were used for.

So, say you had a $100,000 loan for an investment property. Generally the interest on the whole amount borrowed to purchase the investment property will be deductible.

Say you set up your loan with the idea of saving interest and you had arranged for your monthly salary to go straight into the loan. This will save you interest as your balance will immediately decrease.

So you had your $5000 wage deposited into the loan account. The new balance is $95,000.

The next day you take out $4,000 to buy groceries and for living expenses. The ATO will consider this to be new borrowings. The interest on this $4,000 will only be deductible if the funds were used for investment or business purposes. In this case it won’t be because the expenses purchased were of a private or personal nature.

Now you have a $99,000 loan, but only the interest on $95,000 is deductible with interest on $4,000 not deductible.

This is just the first month.

You then do it again and again. Assuming you were paying the interest separately and in addition to the wage being deposited you will have paid the tax deductible loan off in 20 months, but you will still have a non-deductible loan outstanding of $80,000.

A way to have avoided this and still have saved the same interest without the tax complications would have been to use a loan with a 100% offset account attached. All money, savings, wages, rents etc should have gone into this account. This would save the same in interest as if you had paid it into the loan.

There are a few choices:
Your name
Her name
Both names
Trust
Company
Superfund.

Since you run a small business, as a sole trader (which is dangerous) you run the risk of being sued. You could buy in the wife's name or in a discretionary trust for greater asset protection. The downside with trusts is the large loss will not reduce you tax, but the upside is that when a profit is made down the track it can be distributed in a tax effective manner.

You could buy in your name now, but later when you sell you will be hit with all the CGT, and you will have asset protection issues – but at least you will save tax.

I am surprised you are not running your business through a company which will give you asset protection and allow you to employ the wife and to save tax. Maybe this is a solution – change to a company and then buy it in joint names.

You just have to do some scenario calculations.

LOCs are great, but they should only be used to access equity.

By using a LOC to deposit and withdraw money you could be creating tax issues down the track. You can acheive the same effect by using a 100% offset with a IO loan (or even a PI loan) – plus htey are cheaper as GOM points out.

Its probably best if he keeps his cash, then borrows from your LOC. but it depends on your situation. eg. it might be good if he can put the cash into an offset account – on your PPOR loan or on the new one.

It would reduce his borrowing capacity in the future if he goes on the LOC with you as he would have more debt. (technically borrowing from you will also be debt, but it won't show up on his credit report).

Another point, at some stage in the future you may also consider fixing your loan – Banks generally have better fixed rates than the non bank lenders.

Partnerships are extremely dangerous.

If only NC had some advice when setting up the second business, this could have been quarantined from the first.

For the finance it will be hard to qualify for many years. You could get around this by using a family member or a friend to help you out.

Go as long as possible – as you can always pay extra down the track if you want to.

Another idea behind IO is that you use less money per money which means you can afford more investments.

I don't think it is a requirement. You can claim based on the costs where you know them, if you need to rely on an estimate, then only a QS is qualified to give this.

I agree with Fredo though – you will end up with the QS finding more items than you had thought of and getting a higher depreciation allowance than if you did it by yourself.