Forums / Getting Technical / Legal & Accounting / Use CC to get Points and pay off with LOC

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  • Profile photo of jacqui_03jacqui_03
    Member
    @jacqui_03
    Join Date: 2010
    Post Count: 142

    I was hoping someone could advise me the correct way to fund renovations.

    At the moment I am drawing on LOC direct to pay for some renovations, deposits, stamp duty etc. However for the purchases which I could do on a CC I used my personal platinum mastercard/Amex to get extra points. I made sure whatever purchases I made on the CC I only reimbursed the exact same amount so I was not paying any of the personal expenses. I would also put a detail/reference on the LOC statement so it would relate to the credit card.

    I spoke with an accountant who said it may be easier for tax and audits to only use the LOC as there would only be 1 lot of paper trail.

    I was worried about the way the ATO view this as I have heard interest may not be tax deductible if mixed in a cheque account with personal savings or used for personal drawing

    I have not paid any personal purchases with the LOC, it has been strictly for investment purposes only.

    I was wondering if anyone uses a separate credit card for their properties to accumulate points and whether this is an issue if it is being paid by a LOC.  

    Cheers,

    Jacqui

    Profile photo of TerrywTerryw
    Participant
    @terryw
    Join Date: 2001
    Post Count: 16,173

    The trouble will arise if you are paying personal expenses with the credit card as well. Once you do that it will be one big loan without the possibility of separating deductible and non deductible portions. So if you then refinance this loan with a new loan from the credit card only part of it could be attributed to the investment portion.

    Its like urinating into a bucket and then saying you will take the urine portion out and replace it with water! Would you drink it then?

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

    Lawyer, Mortgage Broker and Tax Advisor (Aust wide) http://propertytaxbook.com.au/

    Profile photo of jacqui_03jacqui_03
    Member
    @jacqui_03
    Join Date: 2010
    Post Count: 142

    I’m a little confused so will clarify a few details with you.

    CC has been used for investment and personal however only investment purchases have been paid with LOC.

    Eg. If I spend $204.95 I would pay exactly $204.95 back from LOC and put a description in to marry up what’s been paid.

    I haven’t ever paid for personal expenses using the LOC. I don’t pay the total closing balance using the LOC only the amounts used for investment.

    I want to know whether the interest I’m being charged on the LOC will still be deductible?

    Profile photo of TerrywTerryw
    Participant
    @terryw
    Join Date: 2001
    Post Count: 16,173

    eg if the balance of the card was $1000 and you had used $204.95 of this for investment, then this means 20.94% of the card is investment related. So when you borrow $204.95 from your LOC and pay it into the credit card then only 20.94% of this will come off the investment portion.

    However, assuming you pay the card off in full each month, then it may not be such an issue. No interest would be added to the card, so it should be easy to apportion the investment/private balances

    So the interest on the money borrowed to refinance the credit card debt may not be fully deductible if you have used that credit card for personal expenses too if you do not pay the card off in full. If you do I think it may be not much of a problem.

    In practice if you were audited by the ATO I don't think that would really care to look into it that much as the sums will not be that great.

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

    Lawyer, Mortgage Broker and Tax Advisor (Aust wide) http://propertytaxbook.com.au/

    Profile photo of jacqui_03jacqui_03
    Member
    @jacqui_03
    Join Date: 2010
    Post Count: 142

    Thanks so much for your help Terry.

    I do pay the CC in full every month so never pay interest so hopefully it will be ok.

    To be on the safe side the next renovation I do I will have all drawings from the LOC.

    Cheers

    Jacqui

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