There are perfectly good reasons that someone might want to offer a rebate.

eg. repairs to be completed before settlement or $X comes off the price.

eg. must settle by XXX or $xx comes off the price.

etc

How can these be illegal?

Not informing the lender, MAY be a different matter.

Terryw
Discover Home Loans
Mortgage Broker
North Sydney
[email protected]

Sounds like you are asking for a rebate. As far as I know this is legal to do, though many solicitors do not like it.

You may be going into a grey area if you were to tell a lender you are paying a higher price for the property and then obtain finance on this higher price.

Terryw
Discover Home Loans
Mortgage Broker
North Sydney
[email protected]

Hi Guys

Rob, I can see your warming to the idea!

Derek, I beleive Steve Navra has a private ruling concerning his deductibility of interest for his cashbonds. Because the cashbonds return only about 4%, and it will cost you about 7% to borrow the money to buy them, there is a shortfall. The ruling is about the deductibility of this shortfall. The purpose of getting the bond is to increase serviceability, so deductibility is allowable.

But the neither cashbond or the ruling are not necessary for living off equity.

It has been about 4 years since I did the Navra course, so he may have modified his approach.

From memory, he says something like this:

Build up a large portfolio of good property while working. When you reach a certain level, you can ease off work, or stop completely. You can then draw down part of the growth of the portfolio afer it has occurred, taking now more than 80% of the growth.

eg. $2,000,000 worth of property. If the portfolio grew at 5%, that is $100,000 growth for the year. In this case, the investor could take a max of $80,000 out for use (lifestyle etc).

The next year, you portfolio does not grow at all. That means you cannot take out any extra funds. You may have to get a job! or you may have some money left over from the previous year.

Part of the money you take out would need to be used to pay for the additional interest incurred.

Steve Navra is a licenced Financial Planner, and he also runs cheap weekend courses a few times a year. He also incorporates shares into his program as well and suggests building up a good portfolio of shares which will add to your income.

Terryw
Discover Home Loans
Mortgage Broker
North Sydney
[email protected]

I don’t know. But it is treated similar to legal fees. They are purchase costs.

It would be good if I am wrong as it would be much better to claim them up front. I guess it could come down to the wording of the tax invoice>

Terryw
Discover Home Loans
Mortgage Broker
North Sydney
[email protected]

It probably depends on where and what you are buying.

If you were buying cheap little properties in country areas, these may have not had any growth for many years. Then suddenly investors start buying in there for yields. This pushes up the price but rents hardly increase. This probably is the time to exit this market. it would be no good hanging on to these if there could be long terms with no CG potential.

If you are buying quality properties in good growth areas, then I agree that it is not a good idea to sell – generally.

Terryw
Discover Home Loans
Mortgage Broker
North Sydney
[email protected]

No. Not against personal income, just against other income the trust makes. Losses cannot be distributed.

If you had a hybrid discretionary trust, the unit holder could borrow the money and claim the interest against their personal income. In effect this allows negative gearing with a trust.

Terryw
Discover Home Loans
Mortgage Broker
North Sydney
[email protected]

What’s wrong with you Rob? Do you just like to argue?

I will put up an example tomorrow. Don’t dismiss it just yet.

Terryw
Discover Home Loans
Mortgage Broker
North Sydney
[email protected]

Have a look at the book by the Reno Kings. There is a chapter in there about people who specialise in this area.

Terryw
Discover Home Loans
Mortgage Broker
North Sydney
[email protected]

No, Please don’t go though it all again!

I would just be very careful when giving advice to clients about borrowing money and parking it in an offset account. Especially in writing on company letter head.

Terryw
Discover Home Loans
Mortgage Broker
North Sydney
[email protected]

The Hart’s case is not about capitalising interest in general. It was about a scheme entered into with the dominant purpose of generating tax deductions.
The appeal is at:
http://law.ato.gov.au/atolaw/view.htm?basic=+harts%20v%20+compound&&docid=JUD/50ATR369/00001

Paragraph, 33 “The fact that the taxpayer had even a dominant purpose of obtaining a tax benefit would not, in my mind, preclude a deduction, so long as the combined test was satisfied. On the other hand, a finding that there was no other purpose of incurring a loss or outgoing than obtaining a tax deduction would.”

So, if there were purposes for capitalising interest other than for increasing tax deductions, it would probably be acceptible. Other reasons may include cashflow. I am sure that there would be many others.

Terryw
Discover Home Loans
Mortgage Broker
North Sydney
[email protected]