Thanks for the response Terryw

No, nothing is being deposited into the Viridian instead of the minimal monthly repayment from the rent.

My plan now is to apply for a new credit card that will be used only to pay for the expenses associated with the IP. I will use the LOC to pay this card off completely every month. 

Thanks for the response. Yes we did consider the option of letting a agent find a tenant and manage the property for the 12 months. At least that way we can establish if the tenants are decent.

We where in similar circumstances a few years back and from the start the tenants knew us (pretty much in the same street). In the end it was easier for…[Read more]

That’s the plan.

Thanks guys. Yes, I meant in relation to the interest only be deductible prior to renting. Once the property is rented then the expense may be deductible or depreciable depending on what it is as well as any interest on it is if it builds up the LOC. BTW I am not an accountant either

Thanks Terry.

Currently for the LOC I have never deposited any funds into it – no income goes into it. I have used it to only pay for expenses on maintaining/improving the property such replacing a existing timber balcony and plumbing. I have no intention of “contaminating” the loan.

Is it fair to assume that once we start renting the property…[Read more]

My plan is to let the LOC capitalise slowly over time with the on-going rental property expenses.I do not quite understand what you mean by "it can save you thousands" – is there a way to maximise the benefit more out of the LOC over and above what I have outlined above?

Thanks Terry but if the loan increased due to expenses directly associated in preparing the property for rent then it should be okay? The intention of taking out a LOC for the rental was ONLY to cover for direct cost of rental property improvements and any on-going costs such a water rates, council rates etc. I do not want to "contaminate" the…[Read more]

The other question I have is does the ATO take interest in what your loan starting amount (and how you got there) is or are they only interested in what happens from the day it becomes a rental?  In other words if I increased my LOC by $20K doing repairs to the house (new deck, painting etc) in the months prior to it becoming a rental property wou…[Read more]

Thanks TerryW,No intention to deposit wages in the LOC and have not. The LOC loan is only for the rental property to cover on-going expenses solely for that rental property such as on-going maintenance, council rates, potential land tax payments etc. As mentioned the LOC was only set up 6 weeks ago since we plan to move out of this property w…[Read more]

Richard/TerryW,Would not the interest on a LOC be tax deductable as well if it is a rental? What would be the differences between a IO loan and a LOC be in this case as far as the ATO is concerned?

Thanks for the advise Terry and Richard. Appreciated.

I still have two other loans with the CBA so I doubt I will qualify for example for the NAB Choice package? I do have a Wealth package with the CBA but it does not apply to the "business products" such as a business LOC.As I said the property is a retail shop with flat above – am I restricted to "business" products only? The CBA has atleast c…[Read more]

Thanks Terry. As far as CBA a concerned they will classify it as a business LOC. I will give NAB and the others a go but the establishment/valuation fees will be alot higher.

Thanks Terry.Would anyone be familiar with which product the Comm. Bank has that would help me? We are stuck with them for the moment.

Thanks guys. Rather than a line of credit or a loan with a offset facility. Can I have a simply have a IO loan with additional available funds in redraw and a CBA Streamline account with BPAY facility to be use exclusively for the property expenses such as rates, insurance etc. That way from a paperwork perspective it is auditable. Would this work also?

Thanks No. 8. If it problematci (and it sounds like it is) then I would not go down this path.

Thanks Terry. Sound like the issue may be the intention of the use of the funds freed this way – it would have to be for income producing purposes.Another question. Would a family trust be a better option? Not sure how complex this is to set up and how the ATO would view this as per my original post?

Thanks Terry. Do you mean legal or accounting advise?

The main objective is to reduce the high mortgage on what will become our home. Saying that if the loan on our PPOR (to become IP) will also increase means she can claim more on tax anyway by default.Would the ATO see this negatively even though it is not the overriding objective?

Terryw wrote:
Another potential option is to sell to a discretionary trust – but there are many disadvantages to this too.A 3rd option is to speak to a tax advisor about setting up a LOC and borrowing to pay interest on the old PPOR – this is ineffect capitalising the interest on the loan and will free up more cash to pay down your new PPOR…[Read more]