A financial planner recently briefly mentioned that I could convert non-deductible debt of a PPOR to deductible. I hope I heard this correctly but since then I can't work out how this is possible.
Basically my understanding from them was:
1. If I own a PPOR the interest on the loan is non deductible. I will be paying the loan using my self employed income (operating through a PSI trust).
2. However by having a "business line of credit", which would pay my PSI trust expenses (deductible), the business LOC can pay the interest on the PPOR loan which then make this interest payment tax deductible.
Thanks for your comments!
bb8
bb8 wrote:A financial planner recently briefly mentioned that I could convert non-deductible debt of a PPOR to deductible. I hope I heard this correctly but since then I can't work out how this is possible.
Basically my understanding from them was:
1. If I own a PPOR the interest on the loan is non deductible. I will be paying the loan using my self employed income (operating through a PSI trust).
2. However by having a "business line of credit", which would pay my PSI trust expenses (deductible), the business LOC can pay the interest on the PPOR loan which then make this interest payment tax deductible.
Thanks for your comments!
bb8
Hi BB8,
You should take advice from a tax accountant on this, as should anyone implementing such startegies. But, generally, you can lend a business money through a LOC to pay business expenses and interest on the LOC will be tax deductable, if this allows you to increase dividends, wages etc. then this increased income can be used to pay down the non deductable debt more quickly.
Regards
AlistairThis is one of many strategy that a lot of FP suggest or “market” But as Alistair mentioned; speak to your accountant first because;
1. You still need your accountant to lodge the tax deduction, and if he has no idea what your doing …your going to have trouble
2. It may NOT be suitable for everyone..
3. Im not sure how the ATO would like this strategy
I high suggest you speak to your accountant; or ask for another strategy from your FP if it’s to confusing ( there are more then 1 way to achieve what your asking…)
Regards
MichaelMick C | Shape Home Loans
http://www.shapehomeloans.com.au/
Email Me | Phone MeSame Banks. Better Rates. Served With a Passion.
This concept/ strategy is not suggested or marketed, it is actually in full operation around the country in many shapes/ forms.
If your accountant has never heard of this then you can find many who have……
This strategy is definately one that should be considered by anyone who is self employed. However, it must be implemented properly, there have been some recent private tax rulings which have disallowed certain tax minimisation strategies, so it is important to seek proper advice from a competent tax accountant, but for the most part the strategy mentioned should work well. It is already widely utilised and there are few strategies that can turn non deductable debt deductable with anywhere near the speed that this strategy can.
Regards
AlistairWhat is a PSI Trust?
PSI could refer to personal services income which is income generated from the effort of a person. Even if run through a trust the income is taxed as if the individual earned it and not the trust. To get the income classed as trust income certain rules have to be met.
So be very careful
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
bb8 wrote:2. However by having a "business line of credit", which would pay my PSI trust expenses (deductible), the business LOC can pay the interest on the PPOR loan which then make this interest payment tax deductible.
It's not that simple. Interest deductibility is determined by the use of the funds. In the transaction of the trust LOC paying your PPOR interest, it MAY be deductible, depending on whether the trust owes you money or not.
We have set up loans for clients in the past, where the trust / company owes the individual money. This interest is deductible, as the company is borrowing to repay a shareholder / director loan.
But it depends on whether the trust owes you money or not. Most times in the smaller PSI type businesses run through trusts, the individual owes the trust, not the other way around. This is something your financial planner would not know, unless they have seen your financial accounts.
As others have said, be careful when taking tax advice from financial planners. And if your financial planner is charging for this tax advice, they could be breaking the law.
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