All Topics / Creative Investing / LOC The way to go or not?

Viewing 4 posts - 1 through 4 (of 4 total)
  • Profile photo of FitzerFitzer
    Member
    @fitzer
    Join Date: 2007
    Post Count: 12
    February 14, 2011 - 10:53 am

    G'day everyone,
    I've been thinking about this for a long time now,my situation so far is this: 4IP's approx value $2.2m, 1 PPOR $660k ($420k owing) Is it wise to take out a line of credit on the IP's to help pay off the PPOR. I'm trying to get my head around it and haven't done it yet as I don't fully understand the pro's and con's of this type of investing. In a nutshell it appears to me that I would be able to pay off the PPOR alot sooner and be able to claim on the capatilising interest so in effect when looking at the bigger picture I would be paying my PPOR off at a reduced interest rate.OK, am I going the right way or is this technique not advisable? My accountant told me that I wouldn't need a tax ruling.All comments are appreciated.

    Regards,
    Fitzer.

    Profile photo of TerrywTerryw
    Participant
    @terryw
    Join Date: 2001
    Post Count: 16,213
    February 15, 2011 - 3:03 am

    If you borrow to pay out personal debt the interest will not be deductible.

    What you could do is to set up your loans carefully so that you may be able to borrow to pay interest expenses on the investment loans and to divert cash to the private debt. You will need professional advice and a private ruling may be a good idea – make sure your accountant is up to it and understands this and has read other private rulings on the issues.

    Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
    http://www.Structuring.com.au
    Email Me

    Lawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au

    Profile photo of FitzerFitzer
    Member
    @fitzer
    Join Date: 2007
    Post Count: 12
    February 15, 2011 - 10:28 pm

    Thanks Terry,  would it be recommended as being a good strategy or are there some pitfalls associated with it?

    Regards,
    Fitzer…

    Profile photo of TerrywTerryw
    Participant
    @terryw
    Join Date: 2001
    Post Count: 16,213
    February 15, 2011 - 10:30 pm

    The only pit fall would be setting it up incorrectly and having the interest denied by the ATO – and possible fine.

    There are some private rulings in which this strategy has been rejected recently. I have posted links to these here before. you should read those first.

    Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
    http://www.Structuring.com.au
    Email Me

    Lawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au

Viewing 4 posts - 1 through 4 (of 4 total)

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