Hi,
I have just set up a LOC through the CBA for $120K. I am going through a short term period of reduced cashflow and will probably need to use this money for various purposes:
1) paying loan interest repayments on two IP's
2) personal use, e.g. rental payments/credit card living expenses
3) renovation costs for PPOR that my family has now moved out of (will now become a rental IP – at least for the foreseeable future up to 6 years to retain PPOR status). Need to fix a few things up ~$20-30k prior to renting, so this expenditure won't be tax deductible, but presumably able to be depreciated during the period of rental.I might only need this somewhat complicated set up for the next 3-6 months, but don't want to cross contaminate the LOC or make it impossible to work out the various interest components.
Would it be sufficient to split the LOC facility into 2 or 3 different loans for each purpose? Each split will cost extra $200 spouse guarantee fee, which isn't too drastic, but I just want to make sure this arrangement would be OK for tax/accounting purposes.Thanks for any advice.
Hi W8up,
As you mention, it is critical you don't 'cross contaminate' .
As you mention, either split accordingly and keep totally separate or you could keep one, use it for personal, clear it completely, and then start fresh again from a $0 balance and it will then become your 'investment' LOC.Cheers
Is it possible for you to not use the LOC for personal expenses – possibly use the rental income to live on while borrowing to pay the interest?
Also if the house isn't available fo rent yet then you may find the costs associated with getting it ready are not deductible. Speak to a tax advisor about putting it on the rental market first and see if this changes things.
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 for your replies v8ghia and TerryW
I can probably avoid using the LOC for private expenses as you suggest. I spoke to my accountant today and he said that I could still claim deprecation on costs of renovating the PPOR prior to rental, but the thought also occurred to me to list the place for rental prior to commencing work to be on the safe side.
Cheers
I don't know if that is correct – claiming before renting.
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
my understanding is any renovations done prior to it becoming an IP counts as capital expenses used in CGT calculations. I too thought it had to be a rental property first before any expenses could be depreciated ? im no expert though so i would be interested in clarification !
Hi,
The ATO website states that:Claiming deductions
As with any rental property, the costs you incur when your home is rented out, such as repairs and maintenance, are deductible even though you are claiming the main residence CGT exemption.
You need to keep accurate records and remember, you cannot claim:
- an immediate deduction for initial repairs, renovation or construction costs (although capital works deductions may be available over 25 or 40 years for certain construction expenditure), or
- any deductions for periods the home is not rented out or not available for rent.
So seems to be two points
1) Any initial repairs/improvements can't be claimed as deductions, but could be depreciated
2) Deductions can be claimed as long as the property is available for rent (i.e. listed) not necessarily tenanted at the time.Does anyone else have other understanding of this rule?
Cheers
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