HELP NEEDED ASAP FOR FINANCE DEAL

What Foundation said.

Why would you not just go to Contract at $230K and have the extra equity built in.

Admitedly your LMI would be a little higher but at least you wouldnt be spending years looking thru bars thinking about "if only"

Hi Pauls05

I have posted on this issue before.  Unless the bank is notified of any rebate or in fact any agreement to only pay $230,000 for the property, it is fraudulent.  This is despite what other solicitors may or may not have told you.

I am a solicitor and normally I put a disclaimer on any legal comments I make on the forum but I am prepared to hang my hat on this one.  Fraud.

Cheers

K

Lets look at Pauls05 situation in another light.

If for example Paul owes 30K on a PPOR he could ask the bank for the extra 30K for possible future renovations on the IP he is borrowing for.  If later Paul decides to not do the renovations and use the 30K towards paying off the PPOR then the interest could still be classified as a tax deduction as the main purpose for the 30K was to originally do renovations.  The ATO may see it differently which is why one needs to becareful when doing this.  If the rate that one borrows the money at is lower than the current 30K owed on PPOP then even if the ATO knocks it back you still have lower repayments.

Paul05,

You might find that your best option as previously mentioned is to be just up front with the bank about the extra money. 

Yossarian,

Only tax fraud if intent can be proven.  By being up front with the bank and borrowing 30K to do IP renovations is legal.  If Paul 6 months later decides to only use 5K towards the renovation instead of 30K and the rest to pay off ppor where does fraud come into it.  It is a very grey area and why I indicated to tread very carefully if going down this path.

Linar,

Agree about continual disclosure but in reality how often does this actually happen? 
If someone wanted 30K to paint the IP but decided to refurnish the IP instead then do they really need to disclose the difference?  It is a bit of a different situation but how far do we need to take disclosure?

We have 2 situations.

1) Possible fraud with the bank.

( I advised about being up front with the bank about wanting extra 30K to avoid fraud.)

2) Can the 30K or part of be a tax deduction if used elsewhere, for example pay off ppor.

( Technically/legally no but as I mentioned this can be a grey area if done in the eyes of the ATO.  In previous discussions with the ATO on this I have been told (a) that the part used for IP can be deductible but again it is another grey area and will depend on the assessor at the time if checked (b)  It is similar to people who claim klms or fuel on their vehicles.  Most people probably claim more than they are entitled too.)

The point I have been stressing is that pauls05 must be careful what ever he does and it is better to notify the parties concerned about what he does.

It would be very easy to go backwards and forwards discussing legalities/resposibilities of PAULS05 options but I think we have covered it enough.

Claiming tax deductions is one of those wonderful grey areas.
Should you try to claim what you can and have justifications/documentation or play it safe?
I remember reading somewhere that every investor should try to claim what they can without crossing the boundaries of legalitis but it is up to the ATO to approve or not.  This is not interpreted as trying to commit fraud but more of if you don't try you won't know if it is accepted or not.

C2

I know you have said that you think we have covered the legalities enough here but while you continue to throw up fraudulent propositions I am going to continue to let the rest of the forum know that they are fraudulent.  ( I am not suggesting at all that you have engaged in these activities or that you are in any way fraudulent, but I think it should be pointed out that some of your suggestions would not be considered legal).

If you have loaned money from the bank to paint your IP but then decide to refurnish it, then you have failed to disclose the change in plan to the bank and, technically committed fraud.  The bank has loaned you money to renovate/improve the value of the building.  Refurnishing the property is not renovating.  I imagine that the bank would be quite unhappy about money loaned for renovation being used for purchasing furniture. 

I expect that before a bank lends money for renovation, they want a detailed feasibility about what will be done and how much it will cost.  Any variance from that should be disclosed to the bank.  I can't imagine that the bank would need to know if you decided to change the colour paint from cream to beige, but common sense should reign.  The bank thinks that the renovation is going to increase the property's value by $xxx.  If your "amended" renovation plans will not increase the value of the property by $xxx, then the bank should be told.

So to answer your question about how far do we need to take disclosure – the answer is that disclosure is a legal obligation.  Disclosure should be taken as far as the 50 page loan agreement requires you to.  Sure, you don't HAVE to disclose to the bank any change in plans, just like you don't have to obey the law: you can steal, assault, murder etc, but if you get caught, then there will be consequences.

As to the issue of tax deductibility, Yossarian summed it up very nicely: it must be used for an income producing purpose.  Paying off your PPOR is not an income producing purpose.  This is no grey area with the ATO.

Cheers

K