non tax deductible debt

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benderfile
Participant
@benderfile
Join Date: 2005
Post Count: 42
April 20, 2008 - 12:43 pm
hi y’all, looking for an answer!
where should i put the cash??
i have 170k cash sitting in an ANZ loan (330k) account linked to the house we were living in last 4 years to offset NTDD.this house is now rented. (our PPOR is another property altogether for 2 more yrs)
we have recently moved into a property we were renting to tenants, financed with St George.it is one of three properties i have with them and they are all cross collateralised (i know, silly me)

i need to know exactly what to do with this money to most effectively reduce tax.
although we are not working (6 mths now) we are planning to do ‘Flips’ over next 18mths for an income stream.

the figures with StG:
88k loan LOC variable
200k loan Portfolio
480k loan fixed

My accountant suggests an offset account, however the bank said the only account i can link an offset to effectively is the 88k.
This sounds kosher but how to most effectively use the balance of 82k? we are using this to live on currently so need access to it.

Should i setup the offset with the 88k loan and leave the 82k balance in the ANZ loan to reduce interestwhile still being able to draw down?
Should i first look at restructuring these loans with the ‘Securities substitution’ at StG?

i hope this makes sense to someone out there, love to hear comments

Thanks for helping I appreciate that this is what I call a ‘quality problem’

cheers
Terryw
Participant
@terryw
Join Date: 2001
Post Count: 16,213
April 20, 2008 - 1:56 pm
You should never (or rarely) pay down a loan, especially a investment loan. Maybe you could change the portfolio to a standard IO loan and set up an offset account against that.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
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Lawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Richard Taylor
Participant
@qlds007
Join Date: 2003
Post Count: 12,024
April 20, 2008 - 9:42 pm
I am with Terry no point in having the funds in an Investment Offset A/c with Anz whilst you are paying non deductible interest with the Dragon.
Under a SGB Pro pack you should be able to switch all or some of the Portfolio loan to an IO with nil or next to nil cost.
Set up the offset here and plonk the funds in.
Richard Taylor | Australia's leading private lender
Finance Guru
Member
@finance-guru
Join Date: 2008
Post Count: 9
April 21, 2008 - 8:39 am
Hi Benderfile,
Your two questions can be dealt with seperately. There is no reason to wait on setting up your St G offset account until you've uncrossed your properties, or vice versa. Unless the tax deductibility of any of the accounts is not clear.
As Richard and Terry said, your money is better used offsetting your non-deductible loan with St George, than offsetting your dedutible loan at ANZ. St G have a good offset account with a small monthly fee.
You've said that these are your St G loans
88k loan LOC variable
200k loan Portfolio
480k loan fixed
and that you have 3 properties crossed with St G. Are these 3 loans for your 3 properties or just for your owner occupied debt?
This is an important distinction, as this will change what is tax deductible and what is not.
Feel free to discuss with us privately and we can help clarify matters for you.
benderfile
Participant
@benderfile
Join Date: 2005
Post Count: 42
April 21, 2008 - 11:41 am
thank you all for responding!

TerryW – i believe pay down means parking the cash in the ANZ (now) investment loan. i dont want to leave it there as it is now an IP hence my looking for a way to offset the StG loans and decrease non tax deductible debt. i will look into an IO loan.

i will also look into the Pro Pack Qlds007 the loans are all interest only currently.

Finance Guru-The 3 loans are for the 3 properties but not proportional to the debt.
the three loan amounts are 375k/90k/303k
i am not sure why the amounts couldn’t coincide but apparently they could not do it.
the 375k is for the property we live in now.

as for being not clear, the property we have moved into has a flat attached (a section of the house with own entrance, meter and yard) this is rented and separately (landlord insurance) insured with AAMI. For taxation i am not sure how that stands, this debt (375k of the 480k loan) is the NTDD portion, am i right in thinking that with an offset attached to the whole amount we can apportion the NTDD at the end of financial year?

I hope this is making sense and i am loving the input
philip
Richard Taylor
Participant
@qlds007
Join Date: 2003
Post Count: 12,024
April 21, 2008 - 11:50 am
Hi Philip
Yes makes sense.
One big downside with the Dragon Pro Pack is that the loan have to be cross collateralised.
They will not change this…..and Yes i have asked and tried for clients.
Richard Taylor | Australia's leading private lender