Hello,
I am new to this website and would like some help.
I am looking at venturing into my first property investment. My parents were going to loan me the funds.
There situation is that they have a company with a property investment. They have a redraw account of $200,000 on this investment. What they didn’t know is that when you redraw the amount you can’t claim the interest on the redraw.
My question is: Is there a way around this? I saw an article in the Herald Sun (Melbourne paper) yesterday which talked about this and using an offset account. My parents didn’t setup this loan with an offset account, but with only a redraw facility.
Any there any options they have or will they have to forego claiming the interest expense on the amount they redraw against their income?
Thank you
JasonHi Jason,
Welcome to forum!Best to get LOC.
Cheers
PropertyGuRu [sultan]
Mortgage Consultant
[email protected]NZ loan pre approval from Australia in 48 hours
Hi Jason,
You cannot use the funds from a LOC or a Redraw facility for personal use and claim the interest as a deduction.Your on the right track regarding the offset account, deposits and withdraws via an Offset Account linked to the loan will not effect the purpose of the original loan.
Regards
Steven
Mortgage Broker[email protected]
http://www.mobilemortgagemarket.com.au
Ph:0402483216
Ph:1800 820 500
VICTORIAPLEASE note comments made should not be taken as specific taxation, financial, legal or investment advice.
Hi Jason
I did the same thing myself. I changed my home loan to an offset account in the end. It was well worth it. Talk to your lender. They should be happy to help. Later down the track went with the LOC, but that caused a few more issues to set up than the offset account.
Have fun
Thanks for all the replies.
Can someone clarify what is LOC?
I’ve tried searching the forums but I get varying search results with ‘location’ instead of just LOC.
Thanks
JasonJust found it. Line of credit.
Can someone clarify my train of thought.
My parents take out a LOC on their investment property. They then loan me the funds interest free. They have to pay the interest on the LOC they have taken out. The interest therefor is a tax decuction. When I pay back the principle they aren’t generating revenue but only recovering the money they loaned out. Thus not paying tax on what I pay them back?
If they were to take out a mortgage based on the equity on their investment property the house I want would need to be in their name right?
Is that the difference between them getting a LOC or a mortgage at this point?
I also bought steves new book today $1,000,0000 in a year.
Thanks for all your help so far.
JasonJason,
Have you considered borrowing the deposit from your parents instead of the whole amount and have the loan and title in your name,
in this scenario a 90/10-non genuine savings type loan product would be an option.Regards
Steven
Mortgage Broker[email protected]
http://www.mobilemortgagemarket.com.au
Ph:0402483216
Ph:1800 820 500
VICTORIAPLEASE note comments made should not be taken as specific taxation, financial, legal or investment advice.
Jason
You have jumbled things up. If you parents have a property and withdraw funds to loan you the money, they cannot simply claim the interest because it is an investment property. The ATO looks at the purose of the redraw.
What you need to do is have a loan contract drawn up, your parents draw money and lend it to you. they charge you the same interest as they are paying on their loan. They can then claim the interest as a tax deduction, but they will also be receiving income from you in the form of interest. This should balance out on their side. ie + – = 0.
Now you are paying interest, and if you are buying an investment property, you should be able to claim this interest. If you are buying a PPOR, you probably can’t, or maybe shouldn’t.
It doens’t really matter if it is a LOC or a 100% offset, or a redraw. In the end their interest will go up when they lend you the money. If the money was in a offset account, they wouldn’t be able to pass the interest deductions over to you, but they would be able to claim the extra themselves (and you could pay for this??). If a redraw or a LOC, they can easily make the deduction pass onto yourself.
Terryw
Discover Home Loans
North Sydney
[email protected]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
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