Hi folks,
apologies in advance of this has been asked and answered recently. If so I would be grateful if you could point me to the discussion. If not I would be grateful for your assistance.
In short I am after a "Portfolio" or "Master Limit" style LOC facility with a primary LOC account and 1-2 additional sub accounts (which could be LOC or term loans, I don't really mind). It would be secured against an owner occupied property with about 80% LVR. It would be a full doc loan.
It needs to have a feature whereby it maintains an overall facility limit even if I pay the balance down (pretty standard for a LOC). In addition if I pay one of the sub accounts down, the limit (not balance) of the primary sub account is automatically and instantly increased by the same amount.
For example, let's say I had an overall Portfolio limit of $300k with $200k in the primary sub account and $100k in a secondary sub account. Let's also say to start with that they are fully drawn and the balances are also $200k and $100k respectively. If I pay $10k off the secondary sub account, I want the limit and the balance to both reduce to $90k. The primary account limit would increase from $200k to $210k (maintaining the same overall portfolio limit) but the balance would stay at $200k. I would have $10k in available limit for, say, investment purposes.
I am less interested in a facility where I have to ring a lender or send them a form each month for them to do this manually, and at a fee for service.
I have spoken to the call centres at a few banks that advertise that they do this but their overseas "expert home loan advisers" were unable to help.
Can anyone help?
Thanks in advance,
Jason.
Why do you want such a product?
Possibly the St George Portfolio loan. The sub account limts can be adjusted I beleive.
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
Hate to say whilst both lenders have such a facility the limit adjustments are not automatic and have to manually amended.
The NAB Retail choice package has a similar product however again any limit adjustments have to applied for.
As Terry mentioned why do you need such a product ?
If you give us a wee more information we might be able to give you a ore detailed answer.
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
More information: in short I am currently subsiding my investment portfolio interest cost by approx $5k per month from my personal income. I want to pay that off my home loan instead and capitalise the same amount of investment loan interest on the LOC that will be used for investment purposes.
Jact, Sounds good in theory, but have you read TD 2011/D8 or sought advice on this?
And, why would not a 'normal' LOC work?
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,
I had not sought advice on this because I did not even realise it would be an issue. My train of logic was:
- If I have used equity in my home to obtain a loan for the deposit and costs to buy an investment property (and used a separate sub account for that for example) I can claim interest on that investment loan because the purpose is for investment, despite the fact that it is secured against my property.
- If I have an investment LOC secured by my investment property and there is "room" in that LOC I can capitalise interest up to my limit and claim the interest on that increased portion of the loan as a deduction.
- Similarly, if I have an investment LOC secured by my owner occupied property and there is "room" in that LOC I can capitalise interest up to my limit and claim the interest on that increased portion of the loan as a deduction.
Therefore I reasoned that if the gap that I normally make up myself each month (say $5k) is paid off my non deductible home loan (which is where it would have gone if I did not have an investment property) rather than directly onto my investment LOC then I could capitalise the interest with the "room" I have created on my investment LOC subaccount by paying down my owner occupied LOC (both secured by my owner occupied property). I would still intend for the all the investment income to go towards paying off the investment expenses, it is just the gap that would be capitalised.
Terry from a first scan of that very hard to read (!) draft tax determination it appears that they propose to disallow this specific approach.
Is that your understanding?
Thanks for the heads up by the way. If this can't be done it is disappointing but will have saved me time I can focus on other things.
Jason.
My reading of that TD is that the ATO can apply Part IVA of the Tax Act and deny the deduction if the dominant purpose is to pay the home loan off sooner.
This doesn’t necessarily mean it cannot be done. There is another ruling which says capitalised interest retains the character of the underlying loan, so if the base loan is deductible the capitalised interest can be deductible. But that has to be read with the newer TD mentioned above.
Part IVA is used to deny a deduction if it has a dominant purpose of tax savings.
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
Ok, thanks so much for your time and assistance.
Don’t give up on it though. It is still possible to do, you just need to plan carefully how you structure it and the reasons for doing it.
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
There are also a few private rulings out there where the ATO actually said it was ok – these only work for the individual that applied for the ruling. Might be good ammunition to rely on though if you try the same.
PBR 94313 http://www.ato.gov.au/rba/content.asp?doc=/RBA/Content/94313.htm
PBR 93035 http://www.ato.gov.au/rba/content.asp?doc=/RBA/Content/93035.htm
PBR 93707 http://www.ato.gov.au/rba/content.asp?doc=/RBA/Content/93707.htm
PBR 94313 http://www.ato.gov.au/rba/content.asp?doc=/RBA/Content/94313.htm
One where they said no
PBR 1011345133229 http://www.ato.gov.au/rba/content.asp?doc=/RBA/Content/1011345133229.htm
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
Terryw wrote:There are also a few private rulings out there where the ATO actually said it was ok – these only work for the individual that applied for the ruling. Might be good ammunition to rely on though if you try the same.PBR 94313 http://www.ato.gov.au/rba/content.asp?doc=/RBA/Content/94313.htm
PBR 93035 http://www.ato.gov.au/rba/content.asp?doc=/RBA/Content/93035.htm
PBR 93707 http://www.ato.gov.au/rba/content.asp?doc=/RBA/Content/93707.htm
PBR 94313 http://www.ato.gov.au/rba/content.asp?doc=/RBA/Content/94313.htm
One where they said no
PBR 1011345133229 http://www.ato.gov.au/rba/content.asp?doc=/RBA/Content/1011345133229.htm
Hi Terry,
I get an error when I click on theses links:
"Error 404 – File Not Found
Sorry, the file you were looking for could not be found."
The links redirect. For example the first link goes to: http://www.ato.gov.au/errors/404.aspx?aspxerrorpath=/content.aspx?ms=rba&doc=/RBA/Content/94313.htm.
I get the same error when I paste the PBR nnnn number into the search window.
Do you need a particular ATO login to read these?
Thanks,
Jason.
These were from my notes, the URL has probably changed
Try searching http://www.ato.gov.au/rba/disclaimer.aspx with the PBR number.
I didn’t keep copies, so hope they are still available.
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
Terryw wrote:These were from my notes, the URL has probably changed Try searching http://www.ato.gov.au/rba/disclaimer.aspx with the PBR number. I didn't keep copies, so hope they are still available.Thanks that worked.
The new links are:
PBR 94313 http://www.ato.gov.au/corporate/content.aspx?doc=/rba/content/94313.htm
PBR 93035 http://www.ato.gov.au/corporate/content.aspx?doc=/rba/content/93035.htm
PBR 93707 http://www.ato.gov.au/corporate/content.aspx?doc=/rba/content/93707.htm
One where they said no
PBR 1011345133229 http://www.ato.gov.au/corporate/content.aspx?doc=/rba/content/1011345133229.htm
Hi Jact,
Let's leave the tax questions to one side for the moment and only focus on the strategy you are considering.
At the moment you are paying $5K/month into your portfolio and want to redirect that into your own home mortgage while allowing your LOCs debt levels to increase by the same margin.
On this basis I have a couple of questions for you to consider.
1. Will the existing LOCs limits allow you to make significant inroads/pay-out your mortgage before they reach their limit?
2. Assuming you still have a mortgage on your own home when exhaust your LOC limits – how will you manage that scenario?
While, in effect, you are moving debt from non-deductible to deductible have you considered the possible scenario you will create if you want to sell off an IP or two?
Just some thoughts for you to consider.
Derek wrote:Hi Jact,Let's leave the tax questions to one side for the moment and only focus on the strategy you are considering.
At the moment you are paying $5K/month into your portfolio and want to redirect that into your own home mortgage while allowing your LOCs debt levels to increase by the same margin.
On this basis I have a couple of questions for you to consider.
1. Will the existing LOCs limits allow you to make significant inroads/pay-out your mortgage before they reach their limit?
2. Assuming you still have a mortgage on your own home when exhaust your LOC limits – how will you manage that scenario?
While, in effect, you are moving debt from non-deductible to deductible have you considered the possible scenario you will create if you want to sell off an IP or two?
Just some thoughts for you to consider.
Hi Derek,
1. No.
2. Using the scenario described above (rebalancing limits).
I'm not sure how the sale of separate IPs is related to the strategy. Why do you ask?
Thanks,
Jason
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