Rowester – regretfully a simple answer ….. No it wont help you.

If you are also looking at shares or managed funds tro compliment your portfolio then you will also need to look at margin loans.

Whilst these may have a slightly higher interest rate over a secured loan against property they will free up extra equity and in most cases are done as nodoc loans. 

With both of the mortgage insurers having "cash out" concerns at the moment you need to maximise your flexibility.

Anz have self insured through PMI for as long as i have been in Oz.

Hi Fuel

It sounds to me like your existing broker has little or no knowledge or experience and has probably come from the sausage factory. If it doesnt fit first time say no and move on to the next client.

Depending on the actual valuation, your income and a few other factors you could look at a relocation style loan.

Normally anything over 80% loan to valuation would require mortgage insurance however there are always a few options when it comes to this.

Sounds like might be time for you to do the moving on. 

Sorry been flat out over the last couple of days.

Ok some immediate observations:

1) The size of the project is relatively immaterial as far as the ATO is concerned and it more about the regularity.
    If this was a one of project there is every likelyhood that you would be able to claim any GCT concession on any unit held for
   > 12 months.
2) Tax whether it be trading profit or CGT is charged on each and every sale. The cost base is worked out using a sq metre 
     formula. Assuming the total footprint of the land was 1000 square metres and you got 5 equal units on the land then each 
     unit would be assessed as 20% of the total costs. The exception is where one particular unit can be allocated a greater value
     because of its top floor location or better quality fittings etc etc.

     Where the unit is retained no Tax is payable until the sale of this unit. (Of course the contract date is the assessed date for CGT rather than the settlement date where CGT is assessed or the settlement date only if the income is classified as trading income).

 3) Yes you would need to consider GST however if done properly you would have purchased the site using the Margin Scheme.
     This condition would need to be reflected in the purchase contract.

4) On the basis that the purchasing entity is a Corporate Trustee then the Trustee can elect to distribute profit to the Beneficiaries. These may or may not be family members. They may indeed be a Pty Ltd Company or other Trust.

There are a couple of other points but it is getting late and i have half a dozen emails from forum members to answer tonight.

Hi Trance

Wont see much written by lenders on the effect of an offset account as many do not offer such a product and those that do are too keen on paying you such a high rate of interest.

To answer your questions:

What is its real purpose? When you place your everyday savings, rental income and other forms of income in an everyday savings account you will receive a nominal rate of interest depending on the daily balance of which the interest you receive needs to be shown as interest income on your Annual Tax return.

An offset account is an on call savings account where the lender does not physically pay you out any interest (thus nothing to declare on your tax return) however the interest they would have paid is deducted from the interest you are being charged on your associated mortgage loan. The rate of interest offered on these types of account varies from lender to lender however ideally you would try and look for an account where 100% of the interest at the same rate as the mortgage is paid to you the borrower.

I.E Assume you have a mortgage loan of $300,000 being charged at 10% per annum and have $30,000 sat in a 100% mortgage offset account at the same rate. Interest for the year on the loan would be $300K x 10% = $30,000 however this would be reduced by the interest received on the offset account. $30K x 10% = $3,000. Net interest charged = $27,000.

If you had the $30K merely sat in a day to day account earning say 5% you would only receive $1500 in the year and this $1500 would then be taxed at your highest marginal rate. Even if this is only 30 cents in the dollar the amount you receive would be reduced to around $1050. Big difference to $30,000 in the offset A/c

what are the advantages?

Hopefully the above explanation helps clarify the use. There are many advantages when it comes to loan planning and Tax structures especially if the home is to be ever used as an investment property. For clients who have paid off their home they can attach the offset account to an IP loan and receive the same benefit.

The fact that the 2 accounts are separate is the biggest drawcard and the fact that the offer flexibility as time goes on.

Drop me a line of you need further clarification.

Hi Mark

Couple of questions all rolled into 1 post here so i will try and answer them individually.

Firstly refinancing merely to obtain an offset account on such a small loan would probably not be a viable consideration due to the saving not being great enough.

Remember when you refinance it is only the funds used for investment that are Tax deductible and therefore merely by refinancing and withdrawing capital does not make the loan interest a deductible expense.

Obviously if you intend to use the equity for another IP then Yes correctly structuring the loan with an offset account is a real consideration. Any loan costs for refinancing or mortgage costs incurred with the new IP purchase are Tax deductible and can be claimed over a 5 year period or the term of the loan whichever is the lesser.

Whilst you are currently renting at a nominal rent do you think there is any likelyhood that you would purchase a PPOR in the near future. If the answer is in the affirmative then there are other considerations to maximise your deductible debt and minimise the non deductible expenses.

All in all additional information is probably need to advise you further.

I am with Terry.

I am suprised you have relied on the word of some Bank employee that all is ok with the finance.

I recommend clients do not go unconditional until we have the letter of offer and mortgage documents to hand in case there is a last minute hicup.

Suprised the Solicitor didnt ask for something from you Bank before exchanging.

Mark

Not having a go at Duarango being his first but regretfully there is a few inaccuracies.

I will come back to this post later this evening (just stepping out the door) and answer it properly.

Place the funds in your Solicitors Trust Account and have him write a letter which the Broker can give to the lender merely stating he is holding an amount in Trust of $30K representing the deposit.

He doesnt have to say where it has come from.

I have done this on many an ocassion and lenders are fine with it.

As Terry mentions if it is disclosed to the lender that the loan is fromthe Vendor and non repayable then it is likely to reflect in an adjustment in the valuation / purchase price.