Hi,
I have just purchased an First Investment Property and have set up my Loans in the following way:
1) Loan 1 – PPOR
2) Loan 2 – LOC on PPOR (80% of the increased Equity) – Seperate Loan Facility
2) Used the LOC to pay 10 % deposit for the purchase of the IP.
3) Loan 3 – IP Loan set up (with the same Bank) but seperate Security – no cross securitisation.The way I have structured the Loans and Cash Flows are:
1) Interest Only Repayments for Loan 1 gets debited from the 100% Offset Account Linked to the PPOR.
2) Rent from IP goes into an Offset Transaction Account linked to the PPOR.
3) Interest Only repayments for Loan 3 gets debited from the LOC on PPOR.
4) The Interest Only repayment for Loan 2 gets debited from the Offset Account linked to the PPOR.If the Loan Structures are correct, then the amount of IP Loan repayments will keep adding up on the LOC. In other words, funds available in the LOC will keep reducing.
Please provide any guidance.
cheers
AMSounds good, the only problem is the ATO may not allow the capitalisation of interest – paying loan 3 from loan 2. I would suggest you read this recent private ruling and then apply for a ruling of your own. Maybe try a separate bank for loan 3.
Private Binding Ruling authorisation number 1011345133229
http://www.ato.gov.au/rba/content.asp?doc=/RBA/Content/1011345133229.htmTerryw | 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
Thanks Terry
From my understanding, Interest on Investment Loan is Tax Deductible. Is Interest on Interest charged for the Investment Loan also Tax Deductible?
Also, can offset account be shared between 2 loans ?
Interest on interest can be deductible, TD 2008/27.
But what you have to look out for is are you entering a scheme and is the dominant purpose of the scheme the tax savings?
An offset can only be attached to one loan, but you could have more than one offset
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
Thanks Terry.
No schemss for me.
Looks like its constant supervision to co-oridniate the repayments between the Loans that I have and making sure that LOC is always topped up after all the deductions occur.
Cant beging to imagine how complicated it is with a multi – Investment Portfolio.
Could there be an "Equity Bin" – One LOC servicing all the IPs ??
That way. the PPOR and the LOC is kept out of the Cash Flows and Deductions ??
cheers
AM2778You may have a scheme – read that private ruling a bit more closely. I have links to more rulings where the outcome was positive too. Will post later.
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
Hello there,
very interesting, I have almost the same scenario as AM2778, the difference being I haven't bough my investment property yet. Very impressed with the way loan has been structured and gr8 input from Terryw.
With the same situaltion I'll try adding numbers to find out if I could have same options available or not. apologies in advance being stupid question…….
1) Loan 1 – PPOR
2) Loan 2 – LOC on PPOR (95% of the increased Equity) – Seperate Loan Facility
2) Used the LOC to pay deposit for the purchase of the IP. (Doing this I almost used my LOC limit)
3) Loan 3 – IP Loan set up (with the different Bank) but seperate Security – no cross securitisation.The way I prefer to structure the Loans and Cash Flows are:
1) Interest and Principal Repayments for Loan 1 gets debited from the 100% Offset Account Linked to the PPOR.
2) Rent from IP goes into an Offset Transaction Account linked to the PPOR.
3) Interest Only repayments for Loan 3 gets debited from the LOC on PPOR. (if I have used my LOC for the deposit and initial purchase I don't have any money there, what should I do at this step)
4) The Interest Only repayment for Loan 2 gets debited from the Offset Account linked to the PPOR.My problem is my LOC is not that big and it is very possibility that I'll be ending up using all of these money as deposit and legals for my IP.
what strategies should I use then? or this stratergy still applies to me, or do I have to keep going to bank depending on my increased equity on PPOR to top up my LOC.
Please advise.
thanks
SaurinHi Guys,
I had a question.
Why is the LOC needed?. Could you just use the eqity from the PPR as a direct deposit for the IP.
So instead of having interest from the LOC(which is used for investment) and the Interest from the IP both being tax deductible, you would just have one interest payment for the IP that would be tax deductible (assuming its neg geared). While the rent could still go to the Offset.I'd be great to hear your thoughts guys.
You could do Dean but the securities would then be cross collateralised.
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
Hi Dean,
agree with Richard on this, your scenario can work. but that would cause cross collateralisation of securities.
Richard can you please look at my update on ‘October 18, 2010 – 3:30pm’ and advise what strategies should i use or how should i handle my cash flow?
thanks in advance
SaurinHi Saurin
Yes i think you have just about nailed it.
To minimise cash flow might want to chose a lender that will allow you to capitalise the LMI.
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
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