All Topics / Finance / Line of credit

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  • Profile photo of mike.12mike.12
    Member
    @mike.12
    Join Date: 2010
    Post Count: 36

    Hi Mate,
    Very interesting reading on the forum.I am about to invest in my 2nd IP.At present I have saving account, 100% off set link to my principal home and all payments done from it.
    My Brooker adviced me to set up a Line of credit.All my salary and dividend goes into sav acc at present..
    Not sure how it will work ,he had explain that all repayment on Investment will be done from captalization acc.

    Credit limit 170K, Principal H-145K, IP-325K

    Can some one please explain me further.What happens to rent you get whether it will go in the cap acc or the saving acc.
    Will appreciate your input.

    Mike.12

    Profile photo of luke86luke86
    Participant
    @luke86
    Join Date: 2010
    Post Count: 470

    This is tricky- you need to talk to a property savvy accountant about this. Capitalising interest can be done but you would probably want a private ruling to be sure. If you do not get a private ruling and show the ATO that the reason you are capitalising interest on your IP and while paying off your PPOR is not to avoid tax, you may not be able to claim the interest that accrues on your LOC.

    Luke

    Profile photo of TerrywTerryw
    Participant
    @terryw
    Join Date: 2001
    Post Count: 16,190

    Is your broker a licenced Tax Agent? if not he has possibly committed an offence.

    This is possible, but it needs to be structured correctly for it to pass and you should get a private ruling as Luke mentions. Do a search for some links I have provided to private rulings on this 'scheme' – one was rejected.

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

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

    Profile photo of mike.12mike.12
    Member
    @mike.12
    Join Date: 2010
    Post Count: 36

    Perhaps,The info I gave is not very clear.The setup is like this

    The saving acc is only linked to my principle home loan.As this is not Tax detecable.

    As for line of credit is set with the IP loan.For interest to be payed on IP,it will be take from the Portfolio acc ( a Limit is set on this),which will captialized.This is kept seperate for taxable claim.

    The salary, dividend and rental from IP will go into my saving acc,as this linked to 100% offset to my home loan thus reducing my home loan faster.

    I hope this make things bit clear.Appreciate your views on this.if you need any more info please let me know.

    Thanks
    mike.12

    Profile photo of TerrywTerryw
    Participant
    @terryw
    Join Date: 2001
    Post Count: 16,190

    thats how i understood your post. You are borrowing to pay interest.

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

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

    Profile photo of mike.12mike.12
    Member
    @mike.12
    Join Date: 2010
    Post Count: 36

    So,the way it is structured,do  I still have to ask for a ruling from ATO.Can you provide me some links pls.

    Mike.12

    Profile photo of TerrywTerryw
    Participant
    @terryw
    Join Date: 2001
    Post Count: 16,190

    Yes. It is a complex tax question and not a simple yes/no answer.

    If you do a search you will find many links I have provided to about 5 private rulings on this topic. I am on a different computer now so don't have them handy. Let me know later if you can't find them.

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

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

    Profile photo of mike.12mike.12
    Member
    @mike.12
    Join Date: 2010
    Post Count: 36
Viewing 8 posts - 1 through 8 (of 8 total)

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