Buying a cash bond...is interest deductible?

[Kathryn]

If we use a LOC to buy a cash bond, is the interest on the LOC tax deductible? We are trying to decide whether to live off of our LOC and just let the interest capitalise, or buy a cashbond to live off of with the LOC so that we can write off the interest. Anyone done this before?

Thanks,
Kathryn

[sbe]

Typically (there's exceptions to nearly anything in this woprld...), the interest on the cash bond is only deductable if it was required for your investment strategy - eg to qualify / service a loan for an IP.

To live off, well, now you need to 'launder' that money to clean it, if you still want to claim the deduction. But that's now a moral decision....

The spirit of the tax law, is that it needs to be used to aquire income producing assets.

Speak to Steve Navra - he could tell you more.

Cheerio

Simon

[agent007]

>If we use a LOC to buy a cash bond, is the interest on the LOC tax deductible?

It could be if the purpose of the cash bond is to increase your serviceability levels to do investments.

>We are trying to decide whether to live off of our LOC and just let the interest capitalise, or buy a cashbond to live off of with the LOC so that we can write off the interest. Anyone done this before?

I'm not an accountant but, this is not legal (IMHO). Talk to an accountant before trying this structure. Remember that the spirit of the cashbond is to help you to accumulate income producing assets. It's is not to avoid tax. Same with the LOC. If you take money from the LOC to buy a car for a friend. Is it tax deductable?. However, if the money is used to purchase shares or property. Is it?

Hope this help,
Regards,
James.

[Kathryn]

So, if the interest on the LOC isn't tax deductible why would you buy a cash bond in the first place instead of living off the LOC?

Cheers,
Kathryn

[agent007]

Hi Kathryn,

>So, if the interest on the LOC isn't tax deductible why would you buy a cash bond in the first place instead of living off the LOC?

You buy the cashbond if you want to keep on investing. You see, regardless of the amount of money one could have on LOC, Banks won't take that into account when checking serviceability. They need to see an income stream. I'm assuming here that the person doesn't have another or sufficient source of income. The cashbond is a way to present equity as an income.

By the way, I have gone through the same exercise you are going through right now. It doesn't stop to amuse me how we all are looking for the same thing!!!

Regards,
James.

[Kathryn]

Hi James,

So what did you end up doing? Did you buy a cash bond? We are still up in the air as to whether we should or not. We have met with Steve and are doing his course at the end of May in Brisbane, but am still unsure which way to go. Maybe we'll have a better idea after we do the course.

Cheers,
Kathryn

[agent007]

Hi Kathryn,

>So what did you end up doing? Did you buy a cash bond?

Well, my situation is different to yours (is not as good). I'm in the process of rising the funds required to buy a cashbond. I need it because I just hit the serviceability level though, I have enough deposit to do another IP.

We are still up in the air as to whether we should or not.

I guess that the question would be: Do you need a cashbond to continue your projects?. If the aswer is not then, don't bother.

We have met with Steve and are doing his course at the end of May in Brisbane, but am still unsure which way to go. Maybe we'll have a better idea after we do the course.

You will.

Good luck,

James.