You’ve had advice from everyone except the lawyer. A SMSF can only borrow to acquire a single acquirable asset and the asset must be held on trust while there is a mortgage.

But you are talking about a unit trust being involved. Under reg 13.22C a SMSF can own units in a unit trust under certain condition, one being that there is no mortgage or encumbrance on the unit trust itself.

But if it is a widely held unit trust then it is possible for the unit trust to borrow – if it can find a lender. Your SMSF or associates can have no more than 50% (or 49%) of the units of the trust.

It is likely that the lender knew about the SIS Act, but didn’t know about the borrowing having a SMSF involvement.

Yep Jamie is right. Simply drawing down a loan doesn’t make the interest deductible. Deductibility depends on what the funds are used for.

If it wasn’t you one could buy 50% off the other and borrow to do so and claim the interest once rented out – it could be done with no stamp duty. But it may still be worth doing now – one buy the 50% share of the other so they become the sole owner, you just have to pay stamp duty. At least this allows you to increase deductions and keep the property.

Sorry to hear about your situation. This sort of thing is fairly common unfortunately.

If you had a $100k loan, non deductible, secured by the home you could set up a separate loan of $20k also secured by the loan.

You would then borrow $20k from the above loan and $80k from a new loan secured on the IP = 100% borrowings with no crossing of securities. Interest on both loans will be deductible against the IP income (assuming set up correctly).

You should never use $20k cash as you will end up paying more no deductible interest.

La Trobe would be better probably – but she just needs to weigh up the fees and rate.

If you have $500k in super then it would make more sense to set up SMSF – generally. This is because when you look at all the fees in the industry fund they will add up. It may cost less than $2000 pa to run your superfund. But you will have much more control and many more strategies at your disposal. Imagine you were to die now, it would be the trustee of the industry fund that decides where your super can go. At least with a SMSF you can plan ahead.

Just don’t invest in property directly through a sales person.

Its a bit ridiculous to pay a $5k spotters fee when the broker will get a commission as well. Maybe she should approach Pepper via a broker that doesn’t charge.

DeanCollins wrote:

Hi Terry

The St George portfolio loan is only being used for property purchases and each property is being handled by a sub account.

It does have the issue of all the loans being cross collateralized but as I’ve discussed before, I don’t have an issue with this in our personal situation.

Thanks for your advice though, always appreciated.

<i class=”rw-ui-like-icon”></i>0<i class=”rw-ui-dislike-icon”></i>0

<i style=”border-right-color: rgba(153, 153, 153, 0.5);” class=”rw-ui-info-nub rw-ui-info-outer-nub”></i><i style=”border-right-color: rgb(255, 255, 255);” class=”rw-ui-info-nub rw-ui-info-inner-nub”></i>Rate this

Terrible situation. Not sure why you would want to set it up like this (destiny?). Not only is there the cross coll issue but the tax issue – hope you are not going to make any deposits?

DeanCollins wrote:

@terry, so the St George portfolio loan doesn’t attract stamp duty on mortgages for IP?

<i class=”rw-ui-like-icon”></i>0<i class=”rw-ui-dislike-icon”></i>0

<i style=”border-right-color: rgba(153, 153, 153, 0.5);” class=”rw-ui-info-nub rw-ui-info-outer-nub”></i><i style=”border-right-color: rgb(255, 255, 255);” class=”rw-ui-info-nub rw-ui-info-inner-nub”></i>Rate this

Its not the product it is the use. If the loan is being used to purchase property now then there is no duty. If the loan is being used to set up for some future property then there will be duty payable – but banks assess this and collect the duty and sometimes they miss it. If you are charged duty for a LOC you can later fill in a form and ask for a refund, one you use the LOC on property.

BTW you should not be buying a property using the St G portfolio loan. This and other LOCS should only be used to access equity. If you use it for transactions you could end up with a large loan with none of the interest deductible.