Hi Fintrack

I think you have confused a few things. Loan purpose for the original portion stays the same, but it can get messy.

If you redraw from an investment loan the interest on the loan doesn’t become non deductible.

There are three ways it can end up
1. You withdraw from an investment loan and use those funds for that investment property (which the original loan relates to). No problem here. All the interest would be deductible.
2. You withdraw from an investment loan and use those funds for personal expenses – such as groceries, new boat etc. This loan would now be a mixed purpose loan with 2 purposes, one being an investment purpose relating to the original loan and the other being private purpose. The interest on the private purpose would not be deductible. You would need to work out the percentages and claim only the investment portion of the interest.
3. You withdraw from an investment loan and use those funds for another property which is also an investment.
Here you would have a mixed loan, but the whole of the interest would still be deductible. You may have issues later on when selling a property or issues now apportioning interest if the owners of each property are different (e.g. spouse on title to one but not the other).

Rex, Consider what could happen if any of the following were to occur

You
1. die
2. divorce
3. become bankrupt
4. become incapacitated

And what would happen if the other person were to
1. die
2. divorce
3. become bankrupt
4. become incapacitated

Best way would be to pay cash or to borrow against other property. But this is not possible for most.

If you use a trust structure personal guarantees will be needed. There is a way to structure it so that only 1 guarantee is needed – and it thereby affect only one, but whether this is suitable or not will depend on other factors.

Yes Rex, that is it.

Yes. Tax will be payable.

Don\’t forget GST too.

Major advantage is deductibility of interest from a LOC
money from an offset would not be deductible.

Disadantage of a LOC is that it is at call, not good for a developer, so once it is drawn convert it to a IO loan.

If you can use a IO that can be redrawn and paid directly from the loan account then this would be even better.

Hi Trish

Your solicitor will arrange for the loan to be paid out at settlement unless you instruct otherwise (and have altneratives arranged with the mortgagee).

The definition of a trust is A holding assets for B. Where A and B are the same there will be no trust relationship.

If a tenant sues they will sue the owner of the property – which will be the trustee and if that is you all of your personal assets are at risk. Having a company as trustee can limit liability to the company and trust assets in this regard. but watch out for the liability of unit holders.

If the bank takes possession of the property and sells at a loss your personal guarantee will be called on and your personal assets at risk.

How will you fund the trust with cash? Loan, subsribe for units in the trust or just use the cash. Consider the consequences of each.

What are the stamp duty implications of putting a corporate trustee in.

Also have you factored in land tax?

My strategy with Accessing equity is to use a io loan if it can used toboay directly from the loan account. But if it cant then use a Loc and once drawn convert it to a io loan.

This is more work but avoids the tax risks.

I agree Richard, but it depends on the bank. If you can pay directly from the loan account you would be better off avoiding the LOC option. If you cannot then you run the risk of losing deductibility of interest by borrowing and parking into a savings account and then paying out.