Finance structure for owner builders

Hi Yet,

Re 1. – my first reaction would be to say DO NOT mix the purposes of the loans (i.e. don’t use some of the loan to buy/build a Tax Deductable granny flat, and then use the other half to pay off personal debt – keep investment and personal loans TOTALLY separate).

Re 2 and 3 – talk this through with your accountant. Keep all receipts, etc along with emails or correspondence with lenders, etc.

Talk with them re an Offset Account if you don’t already have one. You can get some idea of an Offset’s benefits here:-
https://www.propertyinvesting.com/topic/4410491-the-big-picture-for-new-readers-especially/#post-4697973

Benny

Hi again,

I’m just worried I may not be able to provide evidence/invoice for 40% of the project/work as it will be done by myself and my builder friends via cash in hand.

I wouldn’t be too concerned over that – I am fairly sure a Quantity Surveyor might be able to come up with values that would be suitable for the ATO.

Note that I am “fairly sure” – I am hoping others who KNOW might step in to put me right if wrong, or to agree if I did get it right. ;)

Benny

PS Not sure I like the sound of this:-

I’m in a process of negotiating a offset attached to split loan

Why would you want an Offset on a SPLIT loan? It sounds like it IS MIXING two loans together !! If it doesn’t mean this, please do explain – it doesn’t sound good to me…..

• This reply was modified 8 years ago by  Benny.

I guess I need you to describe to me what you think of as a “split loan”. That is the term I have concerns with, not so much the Offset Account per se.

Describe your “Split Loan” to me and let’s see what comes up then….

By the way, there are even right and wrong ways to spend money from an Offset, so do check back re that bit too. I think I can point you to a link – but first, let’s put that split Loan to bed eh? ;)

Beware – lots of confusing comments in this section.

1. Don’t draw it down. If you borrow to pay off the main residence loan the interest won’t be deductible and your $120k split will be a mixed purpose loan.

2. With extreme care. If you pay for something with cash and then take money from the loan the interest will not be deductible because you have just borrowed to reimburse yourself. Mixed loan issues too,

You need to pay the vendor directly from your loan account – which may be difficult.
An alternative is to use a credit card to borrow to pay for the items and then refinance this loan with the bank loan. You must not have any other private expenses on the card when doing this – or the card will be a mixed purpose loan.

3. Bloody oath. Have you sought tax advice? Property first used to produce income could reset the cost base to market value at the date it first earns income.