If a person is on title they are not a guarantor but a co-owner. The FHOG is only available if all owners qualify.

St G can lend up to 80% on units as small as 25sq meters.

Tax consequences:
 – redrawing from a loan, whether it is a LOC or a standard loan, is considered new borrowings
– Interest on borrowings are only deductible if the money was used for investment or business purposes

– Putting money into an offset account is not putting money into the loan. It is a separate account, so
– taking money out of an offset account is not new borrowings.

eg. say you had an investment loan of $100,000 and then won $50,000 at lotto. You decide to put it into your LOC/Loan for a week before you buy your ivory back scatcher. You want to save interest and think it is a good idea. Your loan drops to $50,000 and you save some interest. A week later you buy the back scratcher – but you no longer have the money so you must borrow it from your loan.

Your net loan is still $100,000, but only $50,000 of it is deductibe.

Now, say you used a 100% offset account instead. Your loan would remain at $100,000 all the time, but you would only pay interest on $50,000 for the  week you had your money in the account. You would save the same amount of interest. But when you take the money out of the offset account, it is not new borrowings. So the deductibility of interest is not effected.

Imagine what would happen if you had a LOC on an investment property and were getting your salary and rents put into this account – your overall loan balance may slowly go down, but your deductible part is rapidly decreasing (assuming you are withdrawing living expenses) so after a few years you may have a similar balance to what you started with, but without the ability to claim any of the interest.

I would only use a IO loan with a 100% offset account attached for any investment property. Never a LOC.

I would only use a LOC for accessing the equity portion of a property, whether owner occupied or investment. The LOC should then only be used for investment expenses such as paying rates, deposits, insurance and even interest on other loans. You should consider letter the interest capitalise or just paying the interest each month until your personal home loan is fully paid off. And even then i would be putting my spare cash into a 100% offset account – just in case you want to buy a personal item. Once you deposit the money into the loan there are tax consequences.

if you withdraw money from a loan it is treated as being new borrowings. So the interest on that money will only be deductible if the funds are used for investment purposes or business purposes.

If the rate is variable the lender can vary the rate any time.

Many clients have been hurt by taking out loans with Macquarie – especially no doc and low doc loans. A few months ago they stopped lending to new clients and dramatically put their rates up on these products – I think at almost 1% above what they started at. With high exit fees many clients are stuck,

These days I personally would only take out loans with the major banks. I put all of my clients with a major bank where possible. If you need a low doc or are credit impaired, then you may have to use one of the non bank lenders, but they are used as a last resort.

abarsby

If the trust owns the property you cannot claim the deductions (unless a unit trust is used). The trust claims the deductions – so no you cannot claim the variation for your income tax.

They are totally different.

An offset account is a savings account where interest that would have been paid comes off a home loan instead.

A LOC is a facility where you can borrow (ie withdraw) up to a certain limit.

It would be much easier for a bank to say they are going to reduce your LOC limit on funds yet to be withdrawn than it would be with money already borrowed.

There are also important tax differences between the 2.

Both are good – they are just used in different circumstances.

Most banks would no lend on a low doc basis – none on a no doc. There may be a few fringe lenders out there who offer Low Doc personal loans – but expect rates high – maybe around 26%. A cheaper option may be a credit card – many banks treat these as low docs – some don't even require proof of income.

If you are buying and selling properties then you will just pay income tax, not capital gains tax. The properties would be classed as trading stock. Like buying and selling apples.

If you buy a proeprty with the intention to rent it and later sell it for a gain, then you will have to pay CGT and will get the 50% discount if held more than 1 year.

Companies don't get the 50% discount, so it would just pay a flat 30% tax. Individuals pay up to 46% tax, so with the 50% discount this could be reduced to about 23% which would make it better than a company,

But the best maybe to use a trust and then you could distrubute to lower income benficiaries and pay a max of 23% tax. If you are classed as a trader, you could still save tax buy distributing to family members, and then to a company when the family members incomes are high enough to make them pay more than 30% tax – ie you could cap your tax at 30%.

Having multiple trusts could also help you claim that you are buying long term with the intention to hold. You may have to sell one or two along the way due to unforseen circumstances.