All Topics / Legal & Accounting / LOC sub accounts

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  • Profile photo of magtronmagtron
    Member
    @magtron
    Join Date: 2008
    Post Count: 7

    Are there any problems with just having one LOC account to pay several IPs expense/interest? This LOC will be use for IP expense only and nothing personal.

    Profile photo of Richard TaylorRichard Taylor
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    @qlds007
    Join Date: 2003
    Post Count: 12,024

    No non at all as long as all of the expenses are investment related.

    If you do have a non deductible home loan however you would be better off using a 100% offset account linked to this loan rather than a LOC.

    Richard Taylor | Mortgage Broker helping investors build their wealth thru property
    http://www.mortgagecapitalaustralia.com.au
    Email Me

    0-40 Properties in a decade with an unencumbered value of over $35M. Email for a copy of my API article

    Profile photo of TerrywTerryw
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    @terryw
    Join Date: 2001
    Post Count: 16,213

    Hi

    Are you saying you wish to borrow to pay IP expenses from your LOC? That is a good strategy, especially if you have non-deductible debt. I think most people would be fine with this.

    Are you also asking if it is OK to borrow to pay the interest of an IP loan? I think this is possible myself and have sought advice on it, but apparently not all accountants think this is ok because of their (mistaken?) take on the capitalising of interest legal case a few years ago. (forget the name of it now). But  you read that case, if you can find it, then you will see it said that if is ok for a business to borrow to pay for expenses, including interest.

    Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
    http://www.Structuring.com.au
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    Lawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au

    Profile photo of magtronmagtron
    Member
    @magtron
    Join Date: 2008
    Post Count: 7

    Thanks for the response guys.
    To clarify, the LOC will be used to capitilise interest.  From reading through the forums, the general trend is that investors set up different sub accounts for different IPs.  However, these sub accounts incurs extra cost to maintain.  For example, can ppl have one big LOC to capitilise say 3 IPs and not separate them? Will this cause many problems at tax time?  But remember that it will only be use for investment and no personal borrowing.

    Profile photo of Richard TaylorRichard Taylor
    Participant
    @qlds007
    Join Date: 2003
    Post Count: 12,024

    Many lenders will let you have upto 10 sub accounts with no extra charge.

    My preference is certainly to go that route.

    Richard Taylor | Mortgage Broker helping investors build their wealth thru property
    http://www.mortgagecapitalaustralia.com.au
    Email Me

    0-40 Properties in a decade with an unencumbered value of over $35M. Email for a copy of my API article

    Profile photo of Hybrid2007Hybrid2007
    Member
    @hybrid2007
    Join Date: 2007
    Post Count: 67

    As far as i was told by my accountant, it is fine to have one loan account relating to separate IP's (u could even have PPOR in there) but as long as you can account for each of the different expenditure with receipts, dates, account reconciliations etc, they will just apportion the expenses to the separate properties.

    Sub accounts are set up i guess to cut out this fiddling around at tax time but otherwise i think you are fine to do it.

    Hope that helps.

    Profile photo of Hybrid2007Hybrid2007
    Member
    @hybrid2007
    Join Date: 2007
    Post Count: 67
    Profile photo of TerrywTerryw
    Participant
    @terryw
    Join Date: 2001
    Post Count: 16,213
    Hybrid2007 wrote:

    As far as i was told by my accountant, it is fine to have one loan account relating to separate IP's (u could even have PPOR in there) but as long as you can account for each of the different expenditure with receipts, dates, account reconciliations etc, they will just apportion the expenses to the separate properties.

    Sub accounts are set up i guess to cut out this fiddling around at tax time but otherwise i think you are fine to do it.

    Hope that helps.

    Hi Hybrid

    I agree it doesn't really matter having all in one loan, but if you were to ever want to refinance or sell one, it would be better to keep them separate if possible i think.

    But i would not suggest having a PPOR loan mixed in as what would happen if you want to pay down the PPOR loan you couldn't do it without using part of the payment to reduce the investment loans as well.

    Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
    http://www.Structuring.com.au
    Email Me

    Lawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au

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