I have had a financial advisre suggest putting all my rental income into my home loan account and use a line of equity account to pay my monthly investment interest rate. Then when I have paid my home loan out then reduce the LOC. He says this way I can pay out my home loans in about six months and never have to worry about short term vacancies. Can anyone tell me if the taxman allows this this because it sounds like a good idea
Thanks Deborah
It is a good idea, but the tax deductibility of the interest is in question. it is currently legal to claim the interest, however the tax office is currently fighting this in the courts with the hearing set down for Nov 7th. If they lose I assume the laws will just be changed to make it illegal.
Terryw
Discover Home Loans
North Sydney
[email protected]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,
But isn’t the structure in the courts one where you totally defer payment of your investment loan in favour of your home loan?
Isn’t the structure I mention slightly different in that you are meeting your repayments but you are borrowing to do so. So this would theoretically mean the I am borrowing for investment purposes making it a tax deduction?
Where are all those tax wizards out there?Deborah,
I’m not sure. You are directing all of your income to the home loan, and then borrowing from a LOC to pay your interest bill. If you do not pay the LOC interest bill each month, then it would be capitalising of interest-which is what the court case is about. if you do pay your LOC interest every month, then there would be no point in using a LOC as you could just be paying the interest on the loan directly.
Does this make sense?
Terryw
Discover Home Loans
North Sydney
[email protected]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,
Would not the point of doing be that I’m decreasing or eliminating a non deductable loan?
Hi Deborah
You could always enquire with the tax office.
Regards
Clive
Deborah, I’m guessing that you are referring to the fact where you have an interest only loan (you should if you have a PPOR loan – at least until it is paid off), and a LOC for your PPOR. You are then directing all income, rent etc. into the LOC. When the interest is due for the IP loan, it comes from this account. As will all bills etc. Is this correct?
If so, then that is a good plan, and one that will certainly help to reduce your PPOR loan quickly. You will not be claiming the interest on the PPOR loan at all, so there is no issue about whether or not the ato wins or loses the appeal (if they lose, they will just change the law anyway).
Cheers
MelHi Mel,
Ihave one PI loan on my PPOR and one equity loan. All rent and income goes into an the PI loan and all bills are on VISA until paid at end of month from PI loan redraw. All IP interest is paid from the equity loan including the equity loan payment. So I suppose that I’m really claiming my interest payments as opposed to deferring them in the current court case, so it is a fine line isn’t it? Is anyone else doing this or something similar?
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