Hey There,
I have just refinanced with the view to gearing up for a round of investing. This is the first time I have used a Line of Credit (LOC) facility.
I plan to direct all income (PAYG income and rental income) through the LOC. I also plan to use the account for all bill payments to essentially make it our main account for household expenses.
Many LOC / Debt Reduction ‘experts’ suggest to use a credit card for household expenses, then transfer once per month. However I’m not really keen on that approach.
Anyone care to share on their structures / experiences and use of LOC facilities?
Rgs
QL
Hi Quantum. Half your luck….Actually good on you… Just my 4c worth. I would have thought that unless you have a ‘split’ account or loan facility, and use one split of your loan as an LOC for investment ins and outs only, and another split as an LOC for personal / household use, (ie, non tax deductable) I would think tax time would be an absolute nightmare keeping track of all the expenses and income – what is tax deductable, tax deductable interest, and what is not. Just a thought. all the best hey..[strum]
V8Ghia is spot on. You will create a mess re deductible and non deductible debt.
I would consider a split or even two LOCs. One clearly for tax deductible expenses, ie IP rates, insurances, buying shares etc etc
The second for private use. PPOR debt, personal expenditure etc etc
Direct all repayments into the non deductible debt. As it gets smaller so you lower the limit and raise the limit on the investing LOC/split.
There are some recent taxation rulings that allow for capitalisation of interest in the LOC. Some doubt exists in a lot of peoples minds so I strongly advise that you take these threads as food for thought and engage an accountant to advise you on your strategy.
Your goal is to end up with all deductible debt. It will take a while but it does happen.
THIS IS NOT ADVICE
Just ideas to toss around …
Simon Macks
Residential and Commercial Finance Broker
[email protected]
0425 228 985Comments may not be relevant to individual circumstances. If you intend making any investment, financial or taxation decision you should consult a professional adviser.
Originally posted by Quantum Leap:Hey There,
I have just refinanced with the view to gearing up for a round of investing. This is the first time I have used a Line of Credit (LOC) facility.
I plan to direct all income (PAYG income and rental income) through the LOC. I also plan to use the account for all bill payments to essentially make it our main account for household expenses.
Many LOC / Debt Reduction ‘experts’ suggest to use a credit card for household expenses, then transfer once per month. However I’m not really keen on that approach.
Anyone care to share on their structures / experiences and use of LOC facilities?
Rgs
QL
You’ve had some bad advice there. This won’t work for taxation reasons.
Ideally you need a LOC and a 100% offset account. Pay all of your cash into the offset, and then borrow from the LOC to pay expenses, and for deposits.
Terryw
Discover Home Loans
Parramatta
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Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Dear Terryw
I agree with the other posts.. Ok to have 2 x LOC s.Split or create another one.
make sure that you keep your personal incomings and outgoings seperate from investment LOC. Otherwise it developes into an accounting nightmare, you’ll pay higher accountant fees at tax time, and you will forever be asked the question…”is it for personal or investment purposes”. You dont want the tax dept chasing you down for receipts either[lmao]Or better still just have 1 LOC for investments. All your salary, etc should be in a +ive cash account. That way you are not paying interest that is not deductable!
As you build up wealth in your savings account, xfer onto your LOC. But NEVER EVER xfer from the LOC back into savings!
All the best.
Mathew
http://www.arrttt.com
Custom Oil PortraitsMathew
Why transfer to the LOC at all? I have a 100% offset account which i keep spare cash in. If you pay down the LOC, you cannot claim the interest on the portion of withdrawals if it is not used for investment purposes.
Terryw
Discover Home Loans
Parramatta
[email protected]
Sign up to my mailing list.
Just send me a blank email, with “subscribe†in subject line.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
Hi Terry,
So if I have an account that offsets my loan 100% and if I use that account for personal use, the tax office is ok with this? ie I can still claim interest deductions?I dont have a lot of experience with offset accounts.
My post was just keeping it very simple with not having any bad debt accounts and not mixing personal and investments so it encouranges good saving as well as keeping the tax man at bay.
Regards,
MatMathew
http://www.arrttt.com
Custom Oil PortraitsMathew,
Since the offset is not a loan, paying money in and out will not affect the deductibility of interest of the loan.
Terryw
Discover Home Loans
Parramatta
[email protected]
Sign up to my mailing list.
Just send me a blank email, with “subscribe†in subject line.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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