Hi wealth coach. I was just wondering about this little piece of information at the bottom of your messages:
“Best Investment package
Owner occupied 4.49%
Investment 8.24%”Are these loans available individually or do you have to take them together?
The reason I ask is because the High Court recently ruled that if the lower rate is not available stand alone, then the higher rate is not tax deductible and those using this structure may find a large interest component on their investment property that is not tax deductible if they are not done for tax evasion.
Robert Bou-Hamdan
Mortgage AdviserM: 0414 347 771
E: [email protected]
W: http://www.mortgagepackaging.com.auComments made are of a general nature and should not be construed as individual advice.
© 2004 Mortgage Packaging Pty Ltd
Hi Rob,
I sense you touch on an obscure yet important point. Can you please expand or perhaps add some links where those interested could find more info?
BTW, welcome back. I look forward to reading and learing from your posts.
Bye,
Steve McKnight
**********
Remember that success comes from doing things differently.
**********Steve McKnight | PropertyInvesting.com Pty Ltd | CEO
https://www.propertyinvesting.comSuccess comes from doing things differently
Thanks Steve. Likewise.
To expand a bit, ‘Hart’s Case’, which was a ruling by the High Court on 27 May 2004, stated that schemes entered into for the dominant purpose of obtaining a tax benefit were not permitted. They also stated that if the loans were taken seperately with different terms, it would not pose a problem. The decision can be read at:
http://www.austlii.edu.au/au/cases/cth/HCA/2004/26.html
To simplify it using the “Best Investment Package” example, if a borrower took a loan for 4.49% on their PPOR and then went and got a loan for 8.24% on their IP, then that would be fine.
On the other hand, if they were to take a loan for 4.49% on their PPOR and were REQUIRED to also take a loan for 8.29% on an IP, then this would be a breach of the tax legislation (and now contrary to the Common Law since the High Court decision).
What it came down to was whether these rates were available as seperate loans. It is pretty clear that you could get a loan with an 8.29% rate anywhere but a borrower would be crazy to go and take up such a loan when they could easily get less than 6.50%. Finding a loan with a 4.49% rate by itself with no other requirements is impossible. This is below the cash rate and would result in a loss for the lender.
In other words, this structure was no longer available to borrowers since ‘Hart’s Case’ where the interest on the more expensive loan was fully deductible unless the loans could be taken up seperately.
I hope this makes it clearer for everyone.
Robert Bou-Hamdan
Mortgage AdviserM: 0414 347 771
E: [email protected]
W: http://www.mortgagepackaging.com.auComments made are of a general nature and should not be construed as individual advice.
© 2004 Mortgage Packaging Pty Ltd
Rob,
So, what we have here is a product designed to be tax-effective by maximising deductible debt (IP) vs. non-deductibe debt (PPR).
It seems such a scheme that compels a finance combo-deal in the way you mentioned is considered tax evasion.
Thanks for your comments. Do you know if such products were previously common? I’d not come across such a beast at the major lenders…
Bye,
Steve McKnight
**********
Remember that success comes from doing things differently.
**********Steve McKnight | PropertyInvesting.com Pty Ltd | CEO
https://www.propertyinvesting.comSuccess comes from doing things differently
They were common in previous years but many lenders backed out of them when the Hart’s kept going to Court. It went on for a few years through lower Courts. They won the first few cases but the Commissioner of Taxation was persistent and took it to the High Court and won on appeal.
There is nowhere else to go so these forced “combo-deals” are no longer of any use and if you try to deduct the interest, it will be considered tax evasion. The funny thing is that those who still sell these products as tax schemes can be sued and will lose when the borrowers get done in years to come. Ignorance is still no defence.
There are new products being designed to try and take advantage of different loopholes though. I guess we need to just wait and see.
Robert Bou-Hamdan
Mortgage AdviserM: 0414 347 771
E: [email protected]
W: http://www.mortgagepackaging.com.auComments made are of a general nature and should not be construed as individual advice.
© 2004 Mortgage Packaging Pty Ltd
Hi Rob
There is/was a similar product available from Tonto home loans. I don’t know if it is still available or not, but from discussions at the time, this product was structured in a way that was allowable. The Hart’s case only applies to a specific situation. This is an unrelated product, and doesn’t involve the capitalisation of interest. I am no lawyer, but would think that it wouldn’t be apply here.
ps I have never written one of these loans.
Terryw
Discover Home Loans
Mortgage Broker
Click below to email meTerryw | 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
Terry, I think the huge thing that came out of Hart’s case was that the issue did not stop with capitalising the interest. It extended to loans that were structured to push more of the expense onto the investment property. There is no problem having a huge interest rate on an investment property but why would anyone do that if they could take a standard rate?
Robert Bou-Hamdan
Mortgage AdviserM: 0414 347 771
E: [email protected]
W: http://www.mortgagepackaging.com.auComments made are of a general nature and should not be construed as individual advice.
© 2004 Mortgage Packaging Pty Ltd
Hi everyone
The product is legit, but the lender is rationalizing their products and 17/12/04 is the last day they are taking applications for this product. We have only been told this today.
W: pfsfinance.com.au
E:[email protected]
E:[email protected]Development Finance Specialist
I noticed the promo in your signature is gone!!!
[biggrin][biggrin][biggrin]
Robert Bou-Hamdan
Mortgage AdviserM: 0414 347 771
E: [email protected]
W: http://www.mortgagepackaging.com.auFREE Finance-Related Newsletter: See – http://www.mortgagepackaging.com.au/index_files/newsletter.htm
Comments made are of a general nature and should not be construed as individual advice.
© 2004 Mortgage Packaging Pty Ltd
Meant to take it off before I posted today. Forgot, but its off now. I have to go and amend our website as well now.
W: pfsfinance.com.au
E:[email protected]
E:[email protected]Development Finance Specialist
You must be logged in to reply to this topic. If you don't have an account, you can register here.
