All Topics / Legal & Accounting / Accessing LOC to purchase a property

Viewing 6 posts - 1 through 6 (of 6 total)
  • Profile photo of LoganLogan
    Participant
    @glenmore
    Join Date: 2015
    Post Count: 8

    Hi everyone,

    I was wondering if anyone can help shed some light. I was thinking of accessing a LOC on my PPOR to purchase an IP, without taking out a mortgage on the IP. My questions are

    1. Would the interest charged on LOC be tax deductible?
    2. Will the property being in a different state affect this in any way?
    3. The IP purchase would ideally be under a Family Trust, whereas the PPOR is under personal name. Will this affect the taxes in any way?
    4. Is this a bad idea? ( Perhaps there are some things that I have not thought of? )

    Will appreciate any input on this. As I am still a beginner, I have found this forum very helpful

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

    1. Yes, if you borrowed to buy.
    2. no
    3. yes. You would have to lend the trustee the money. loan would need to be at a commercial rate if you want to claim the interest.
    4. not enough info, but can be a good way to proceed. But there may be better methods.

    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 LoganLogan
    Participant
    @glenmore
    Join Date: 2015
    Post Count: 8

    Thanks Terry I’m learning a lot from you.

    Just to clarify on no.3.
    Do I determine the commercial rate as it is a personal loan ? Because it would be a different rate to what is being charged on the LOC.
    I’m assuming that I wouldn’t need the paperwork & also charge myself the commercial rate if it was purchased under personal name?

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

    Thanks Terry I’m learning a lot from you.
    Just to clarify on no.3.Do I determine the commercial rate as it is a personal loan ? Because it would be a different rate to what is being charged on the LOC.I’m assuming that I wouldn’t need the paperwork & also charge myself the commercial rate if it was purchased under personal name?

    You have to consider what the security would be for the loan. If the trustee is going to offer you a 1st mortgage then no reason why you would not offer similar rates to a bank. If it is an unsecured loan then a commercial rate may be a higher rate. But you would not want it too high as you are diverting income from the trust to yourself. You should get both legal and tax advice.

    If you were using the LOC yourself then there is no lending from yourself to yourself but you have already borrowed from a bank and can then use these funds to invest. If you do it properly the interest should be deductible.

    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 Jamie MooreJamie Moore
    Participant
    @jamie-m
    Join Date: 2010
    Post Count: 5,069

    On a side note – a LOC isn’t usually required. An interest only term loan usually provides the same outcome – and often at a lower cost.

    Cheers

    Jamie

    Jamie Moore | Pass Go Home Loans Pty Ltd
    http://www.passgo.com.au
    Email Me | Phone Me

    Mortgage Broker assisting clients Australia wide Email: [email protected]

    Profile photo of LoganLogan
    Participant
    @glenmore
    Join Date: 2015
    Post Count: 8

    Thanks Terry & Jamie,

    looking forward to learning more. Otherwise in a few years I will be making a long “My mistakes” thread.

Viewing 6 posts - 1 through 6 (of 6 total)

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