When refinancing is there a process where I can minimise non deductible debt and maximise deductible debt? Hope you can help
Not really. The nature of debt cannot be changed. The ATO looks at the purpose of the funds.
You should make sure you have IO for investment and PI for non investment.
You should also look at maybe setting up a LOC to pay for rental expenses – even interest. This will allow you to pay off your home loan earlier.
Terryw
Discover Home Loans
Mortgage Broker
North Sydney
[email protected]Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Originally posted by Terryw:You should also look at maybe setting up a LOC to pay for rental expenses – even interest. This will allow you to pay off your home loan earlier.
How do you that Terry? Could you please explain in detail. I would like to do that if possible.
Thanks
PadmaReducing non-deductible debt.
I would suggest you look at P&I on non-deductible debt & I.O on deductible debt with a 100% offset linked to the non-deductible debt, place all spare funds wages & rent etc into the offset until such time as needed.
Taking the above structure one step further, use the credit card for purchases, bills etc during the CC interest free period then pay down the CC from the offset before interest on the CC is due and repeat the cycle,
Warning this method will only suit the budget conscious, (i.e. the high rates incurred on the CC if you don’t repay the balance before the interest free period expires) Tip: Setting up an automatic swipe of the credit card balance can help avoid this. Cheers.Regards
Steven
Mortgage BrokerMobile Mortgage Market
Ph: 0402 483 216
[email protected]
http://www.mobilemortgagemarket.com.auPLEASE note comments made should not be taken as specific taxation, financial, legal or investment advice.
Say you have a $500,000 loan on your property (worth $1mil) and a $500,000 loan on your IP.
You have your poprerty loan PI, and IO on the investment loan. You also have a LOC set up against your home loan. When interest is due on the investment loan, you can pay this from your LOC. When rates etc are due for the IP, pay these also from your LOC.
The cash you would have used to pay these can go straight into your home loan (or 100% offset account).
Please check with your accountant on the capitalising of interest as if not done correctly, you may not be able to claim the interest on the interest.
You may, eg, need another LOC which you use to pay the interest on the interst of the first IP.
Terryw
Discover Home Loans
Mortgage Broker
North Sydney
[email protected]Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Hi Terry,
Does this work with rent?
Example: I receive rent, at the moment this goes into an ordinary bank account, which I top up $300 a month and the bank deducts its payment from.
So instead, if I take the rent & the top up, put this into my PPOR loan, then draw the same amount from my subaccount (Of the PPOR loan)and place that in the account for the bank to draw for IP.
As long as I pay the interest on the “subaccount” I am OK with the tax office? And this become deductable debt right?
I am I getting the gist of it?
Thanks,
Sue“Be careful not to step on the flowers when you’re reaching for the stars”
Sue
I am not sure. You had best run this by your accountant.
If you are putting the rent into an account, why not use a 100% offset account, at least you will save a few days interest per month.
Terryw
Discover Home Loans
Mortgage Broker
North Sydney
[email protected]Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
No problem, Thanks Terry
Sue [biggrin]“Be careful not to step on the flowers when you’re reaching for the stars”
Originally posted by Terryw:You have your poprerty loan PI, and IO on the investment loan. You also have a LOC set up against your home loan. When interest is due on the home loan, you can pay this from your LOC. When rates etc are due for the IP, pay these also from your LOC.
Terry, why would you pay home (PPOR) loan interest from another loan account? The interest on this particlar drawing from loan (LOC) would not be tax deductable as the drawings have been used for private purposes.
Also to think that you have released equivilent income to the interest paid by LOC on PPOR for further reduction of PPOR debt is countered by the consumption of your LOC.
You have done three things, one is transferred non deductable debt from PPOR loan to non deductable debt in LOC,ie; have not reduced private debt.
Secondly, you have comsumed some of your LOC that was available for deductible investment purposes and subsequent deductible interest expense.
From first point, transferred debt for PPOR to LOC without benefit, and secondly also reduced your LOC balance for investment. You could of course really mess around and redraw from your PPOR loan for investment purpose.
Thirdly you have made a mess of your LOC, as you now have mixed borrowing for private and investment purpose in the one loan account. This requires calculation of private interest and deductable interest every time interest is charged (usually monthly) on that account. If your drawings occur on any day other than the first day of each interest chargeable period, then you need to calculate the private debt/investment debt position daily (banks calculate interest daily) for calculation of private interest and investment interest per day, and total daily interest charges for the month or total 365 days interest for financial year.
For your consideration
Tasman
Tasman
Yes. you right!. Of course, I meant to write Investment loan. You pay the interest on the investment loan with your LOC.
Sorry to confuse everyone. I will amend the original post.
Terryw
Discover Home Loans
Mortgage Broker
North Sydney
[email protected]Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
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