Apologises for hijacking this thread My Ques is similar to the one posted by stu82. I have a line of credit on my IP which is under joint name. My and wife's share in the IP is 99/1%. If I borrow from LOC to invest in Shares under her name, Will the interest on the loc be claimed in the same percentage (99/1) or My wife can claim fully as Shares…[Read more]

Rob G. wrote:
I didn't say anything about capitalising interest. The senior courts are quite happy with this concept based on the facts of numerous cases. Its up to you and your competent adviser to decide on your facts.I was referring to borrowing from your LOC to pay an expense for which you will receive an amount back later. Whether by…[Read more]

Terryw wrote:
With water you are borrowing to pay something that you will be reimbursed for. This is different to rental income.

Terry, by water expenses I mean to say service and sewerage charges which has to be beared by Owners.(Tenants pay usage charges only)

Rob G. wrote:
Provided the recoupments from the tenants go directly into the LOC, otherwise you contaminate the loan.Cheers,Rob

Rob G, you mean to say if rent from tenants is going in the LOC, we can continue to pay rental exoenses like council, water, insurance,etc and interest payment of the loan from LOC. ATO does not see this as a…[Read more]

Thanks Terry.     Just one last quick Question. Tenants pay the Water Usage charges of the Water Bill. If I am paying full Water Bill from LOC but getting Usage charges paid back by Tenants later, will that be still fine with ATO?

Dan42 wrote:
Th ATO are cracking down on this. If the rent from your IP is going to pay other non-deductible debt, then you may have an issue. The ATO would argue that you it's not a a cashflow issue, it's a tax avoidance issue, similar to Hart's case. The question you would need to answer, is why, if you have a cashflow issue,. is the income…[Read more]

Terry         Initially I wanted to clarify if eligible for tax deduction when borrowing for general expenses, shares and mortgage. The first two have been confirmed all ok. Thanks to you as well. But now question is with borrowing to pay for interest? What are the acceptable reasons for ATO to believe that it is not a scheme but a genuine mana…[Read more]

Hi All   I send a general email to ATO as well. Please see the reply I got. Reading from text in red, it seems it is safe to say that interest on loan taken to pay for expenses incurred to maintain property are tax deductible. It does not seems ATO has any problem if the rent is going into PPOR offset instead of LOC.It will be interesting to see i…[Read more]

I just spoke to ATO and they advised you cannot claim tax deduction for council,water and other expenses related to investment property and at the same time claim tax deduction on interest on LOC used to borrow for paying these expenses.Has anybody got more information on this? If you can choose one of them only, I would imagine claiming expenses…[Read more]

Thanks Terry. I will also look into Private Ruling to pay mortgage from the LOC.

Terry, Do you mean to say the $50K LOC I have setted up along with my IP loan Can be used to pay for investment expenses? Can I keep borrowing from LOC or is there a limit? So all interest charged on LOC is Tax deductible as long as I am not borrowing for private use?So far my RE has been paying off council and water charges of the rent I am…[Read more]

Guys, Apologies for the delay in updating you how I went with the process of change in lender and my 1st impression with the offering from loans.com.au.- My loan settled in Aug and the whole process was very smooth.-I can confirm that offset account is a separate offset account and causes no change in the loan account when funds are added/removed…[Read more]

I understand what you mean. Ideally, To pay down this loan with offset, re-borrow at time of purchase to have connectivity between borrowing and investment if using offset method. Also keep offset funds separate from personal use offset attached to the PPOR loan in case not refinancing at time of IP purchase. Otherwise go for LOC.

Terryw wrote:
If you do decide to use the offset method, then make sure you have no money in that account when you deposit the borrowed funds. If you do then you will be in a greater mess.

This is exactly what I am trying to do. Will keep funds in separate offset accounts so that funds for investment are not mixed with my personal funds in…[Read more]

Terryw wrote:
What is the purpose. You cannot borrow for an increase in valuation. You also cannot refinance $1000 you paid into the loan last year – or youcan but the interest won't be deductible.I think this is dangerous. You shouldn't borrow money and place it in a savings account as that can break the nexus between borrowing and investing.…[Read more]

Terryw wrote:
Amsaini,Are you saying you want to borrow an extra $25,000 and put it in an offset account?

Terry I will borrow $24K for the increase in valuation and $1K which I have paid into the loan in last 1 Yr. I will create a new account for all funds (25K) on top of my existing loan commitment. Will keep 25K in offset of this account…[Read more]

Jamie,  Currently I have 3 loan accounts 107K  (IO), 95K (P&I) and 45K (IO)  (This is for my 1st IP purchase in 2010)Moving on to fix up the mess I have created earlier,  I will combine 107K and 95K loan account into one , will leave 45K one as it is and create a 3rd account with the increase roughly 25K. This will be used for future IP or PPO…[Read more]

Thanks a lot Terry. The whole Investor community owe you a lot That was very precise, to the point advise with a excellent example.  I generally dont like/understamd LOCs. So when I will plan to buy IP, I would go with the pay off home loan with the offset, re-borrow upto 80%/90% (depending upon requirement) and use the increase to setup new loan…[Read more]

Thanks Michael.. This is bit confusing for the beginners I was under the impression once money has been paid off into loan (either in P&I loan or into Redraw), I have loss tax deductibility on the amount forever. But now I understand that by refinancing and topping up loan to 80% or 90% LVR (whatever required), we can create new loan account to…[Read more]

So Terry, to arrange funds for IP purchase, are you suggesting the best possible way is by refinancing existing PPOR  and then redraw funds for IP deposit?