Hi,
Just joined forums today so please excuse if this topic has been covered:
I would like to draw on some equity from my PPOR for a deposit for a new IP, the options I am considering are:
1. LOC
2. New loan (secured by PPOR) with 100% offset account attachedAny comments on which is preferable over the other? a few things that come to mind:
Disadvantage of LOC:
With ANZ the rate is 15bp higher than standard variable, further to this i get a better discount off the std variable rate as i would with LOC, ie my lender tells me they are two different divisions and hence in my case where they would offer me 95bp discount off std variable they would only offer 85bp off LOC which would net to 25bp disadvantage
Advantage of LOC:
If in the case I have not drawn on my LOC I would maximise borrowing capacity (not sure if this is fact) whereas if I were to finance an amount and have it sitting in the offset account this would affect my borrowing capacity as I have essentially borrowed that amount…All feedback appreciated, even if it is to correct my understanding of the facts.
Thanks,
TlpHey Tlp,
Both have the same end result, they are the best way to borrow, BUT you must keep a record of what interest is business and what is personal, as the ATO will rip you a new one.I just got a $500,000 LOC from Homeside Lending(part of NAB) @ 6.47%, to get that rate I had to have 40% and put up only residential to be mortgaged.
I think you can only get this through a broker.
PS $600 Application Fee, covered two valuations I required to cover the loan.
regards,
ruk.
Thanks Ruk,
No problems with contamination as purpose of loans would be for investment. Does anyone have any comment on borrowing capacity? Would an undrawn LOC allow for maximised borrowing? (vs drawn loan sitting in offset)Thanks,
tlpI would not use the offset account as that is not borrowings and the interest deduction may be denied. What you would be doing is borrowing to put into an offset, which does not earn interest. Then the money is savings. Once you take it out of the offset account the interest on the loan will go up, but you probably won't be able to claim this portion.
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,
Can you clarify please, let me explain my scenario:
Current PPOR:
Property Value: 620
Current loan: 330
100% offset account linked to this mortgage with wages and savings held in accountProposal:
Property Value: 620
Refinanced (split 1): 330 (interest is non tax deductible)
100% offset account linked to this (split 1) with wages and savings held in account
Refinanced (split 2): 166 (interest is tax deductible as for investment purpose – deposit for new IP)
100% offset account linked to this (split 2) 166 sits in this account until required for deposit, until that time I pay no interest on this 166 loanThis is the advice ive received from 2 brokers which essentially produces the same outcome of a LOC, if anyone has info contrary to this then I would appreciate your feedback.
Thanks,
TaiWhy are you taking tax advice from a broker?
In terms of loans, yes it is possible, but in terms of tax deductibility it may or may not destroy your ability to claim the interest on $166,000. Is your broker saying you can claim the interest? Are they licenced or qualified to provide this advice?
What you are doing may be ok if you never use the offset account to deposit any other funds. If you do use the offset then you will be contaminating the borrowed funds and you will be unable to distinguish which funds you later withdraw – the borrowings or the deposit.
Sounds too risky to me.
see the legal case of FCT v Domjan.
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,
My Mortgage broker is a CPA, even so this is why im geting further opinions. Main point is that there are 2 offset accounts (1 for each splict loan) 1 offset account is salaries/daily transactions, the other offset account is only linked to 166k so I wouldn't imagine any contamination?
330k – linked to offset 1 (transactional and no interest deductions claimed)
166k – linked to offset 2 (interest deductions claimed)TLP
hi TLP
I would still caution you regarding this. It could be very costly if the broker is incorrect. I would advise you to get some written advice so if you are audited and disallowed you can point out that you relied on the advice and the penalties will be lower. You could also go for a private ruling.
The problem is that the funds are not really borrowed any more if they are in a savings account before use.
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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