Hi,
Just wondering if anyone had any thoughts on obtaining a LoC loan (for another IP or shares) against our Investment Property. Current the IP has a fair bit of equity, as does our PPOR but thought we could utilise it all. Any pros and cons would be greatly apprecaited.
Cant see an issue as long as your lender doesnt charge you too much of a premium for the facility.
Remember one of the pluses of LOC's are that you only pay interest on what you draw down.
Richard Taylor | Australia's leading private lender
That is a rather large negative from me, think of it in terms of accounting, tax deductibility and separation of investment from personal monies.
I can't see any negatives (other than you are going into debt).
Deductibility will depend on what each draw down of the LOC will be used for. If you only use it for business/investment then there shouldn't be any tax issues.
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
A separate LOC used for investment purposes (shares, IP deposit) shouldn't be a tax problem. It will be a separate loan, easily identifiable for your accountant.
I really like how we all think the same on this site???? and generally write the same answers?????
Take the advice from the two guys above for example, they are correct on one front, the front they are writing about, but so wrong in many other ways….
That is the danger of taking advice when people don't know all your personal circumstances.
number 8 wrote:I really like how we all think the same on this site???? and generally write the same answers?????Take the advice from the two guys above for example, they are correct on one front, the front they are writing about, but so wrong in many other ways….
That is the danger of taking advice when people don't know all your personal circumstances.
But haven't you given advice aswell? Do you know the personal circumstances??
Read the question again. It asks about using an LOC secured against a current property to invest in shares or a new property.
My answer (and Terry's) is there is no problem doing this from a taxation point of view, as the loan is a separate, new loan. I haven't suggested any investment strategy, or loan strategy, just offered an opinion on the loan and tax treatment.
Please point out how I am wrong in 'so many ways'.
I would also like to know
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 all, thanks so much for your comments. I will suggest this to my account and mortagage broker as well to make sure they are comfortable with it too.
Hi guys, just want to piggy back on this thread as my question is in relation to a LOC and tax deductibility. I have been reading much on using equity to finance loans to acquire further investment properties and being able to claim tax deductions on your personal income for the interest accumulated on both the LOC and new loan.
This is all great until you want to protect your assets and think long term by using a trust, in this case a discretionary/family trust. There doesn't seem to be any way of being able to claim for tax deductions on any of the interest that is paid if used in this structure and hence I can't see how it can be used for long term sustainability – you're going to hit a wall very quickly if you can't claim the loses no matter how much equity you have. In those situations I can only see one way out which is to use the property as security and say you have completely paid off the initial property, you'll be opening up multiple loans for IPs using this one house as security meaning you will end up cross collaterising the portfolio.
Am I missing something?
Zan
Can you phrase that? Are you wanting to claim a personal deduction on the LOC interest which is on lent to the trust?
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,
Helpful as always!
Correct when I am doing my calculations I am hoping to claim a personal tax deduction on the LOC interest as well as the home loan for the IP – but I don't believe it can be possible with a trust from what I've read.
Thanks
Zan wrote:This is all great until you want to protect your assets and think long term by using a trust, in this case a discretionary/family trust. There doesn't seem to be any way of being able to claim for tax deductions on any of the interest that is paid if used in this structure and hence I can't see how it can be used for long term sustainability – you're going to hit a wall very quickly if you can't claim the loses no matter how much equity you have.
In those situations I can only see one way out which is to use the property as security and say you have completely paid off the initial property, you'll be opening up multiple loans for IPs using this one house as security meaning you will end up cross collaterising the portfolio.
Am I missing something?
On your first point. With a family trust, the losses stay in the trust. Over time, as rents increase, the property will eventually become cash flow positive. The losses in prior years are offset against future years income.
Second point – I don't think that is your only option, but I'll leave that to someone more qualified.
Zan wrote:Hi Terry,Helpful as always!
Correct when I am doing my calculations I am hoping to claim a personal tax deduction on the LOC interest as well as the home loan for the IP – but I don't believe it can be possible with a trust from what I've read.
Thanks
I think it is possible to claim the interest – but you will be receiving interest from the trust so these will cancel each other out. The net result is the trust gets the deduction.
There is no real way around this as the interest you pay on the LOC will only be deductible if you are using the money borrowed for investment/business purposes. If you are onlending without charging interest, or charging a lower interest rate than you are paying then it is not commerically viable and the ATO would disallow 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
Dan42 wrote:On your first point. With a family trust, the losses stay in the trust. Over time, as rents increase, the property will eventually become cash flow positive. The losses in prior years are offset against future years income.
Second point – I don't think that is your only option, but I'll leave that to someone more qualified.
[/quote]
Thanks Dan. Is there a time frame in which the losses can be offset against future income?
No, they can carry forward until used up.
Terryw wrote:I think it is possible to claim the interest – but you will be receiving interest from the trust so these will cancel each other out. The net result is the trust gets the deduction.
There is no real way around this as the interest you pay on the LOC will only be deductible if you are using the money borrowed for investment/business purposes. If you are onlending without charging interest, or charging a lower interest rate than you are paying then it is not commerically viable and the ATO would disallow it.
So you're saying:
1. Obtain a LOC from lender
2. Loan amount to trust at the same or higher rateHow is this going to work if the IP that the loan acquires is negatively cashed flowed? It won't have enough money to service the loan to myself (and this is not taking into account the loan required to acquire the IP).
Dan42 wrote:No, they can carry forward until used up.Thanks!
Zan wrote:Terryw wrote:I think it is possible to claim the interest – but you will be receiving interest from the trust so these will cancel each other out. The net result is the trust gets the deduction.
There is no real way around this as the interest you pay on the LOC will only be deductible if you are using the money borrowed for investment/business purposes. If you are onlending without charging interest, or charging a lower interest rate than you are paying then it is not commerically viable and the ATO would disallow it.
So you're saying:
1. Obtain a LOC from lender
2. Loan amount to trust at the same or higher rateHow is this going to work if the IP that the loan acquires is negatively cashed flowed? It won't have enough money to service the loan to myself (and this is not taking into account the loan required to acquire the IP).
Thats about it.
If the trust buys a property that is negative geared it will need a cash injection to continue to operate. A gift or further loans.
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:Thats about it.
If the trust buys a property that is negative geared it will need a cash injection to continue to operate. A gift or further loans.
Thanks Terry – but what about protection, I have been reading this thread with interest:
https://www.propertyinvesting.com/forums/getting-technical/finance/4331681A few months ago I thought this all was a piece of cake …
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