Hi all
I'm fairly new on SS and have benefited very much on reading the various threads on here on so many topics that are relevant at different stages of my journey. Just want to say a big thank you to the owners of the forum and the regular contributors on SS for not only sharing their knowledge but also their time and mentorship to the newbies like myself.
I have a few questions below which I hope could be answered by the tax accountants, lawyers & mortgage brokers on SS and I'm sure it will help enlighten myself and others with your valued comments.
1. Capitalising Interest
I've read through the thread 'Interest on interest' by Corsa which from memory was first posted in 2006 and note that since then laws have changed and the general consensus is to get a private ruling on one's specific circumstances. Would this be correct?
Scenario 1:
PPOR loan 300K
IP loan 300K (standalone & not cross collaterised)
LOC 100K
PPOR offset A/C
Property Transaction A/C
Credit Card (only for IP)
If one used a strategy of putting all rental income and salary into the PPOR offset and using the Property Transaction A/C or Credit Card to pay for all IP interest and expenses and the Property Transaction A/C and Credit Card gets its source of funds from the LOC. My understanding is the ATO will apply Part IVA for this structure and deny the deduction for capitalising interest?
Scenario 2:
PPOR loan 300K
IP loan 300K (standalone & not cross collaterised)
LOC 100K
PPOR offset A/C
Property Transaction A/C
Credit Card (only for IP)
All salary income gets deposited into the PPOR offset and rental income is deposited into the Property Transaction A/C and any IP interest & expenses is paid out of this account and any shortfall is funded and sourced from the LOC. My understanding is that the ATO is less likely to apply Part IVA, would this be correct?
2. Loan structure & the mechanics of paying IP expenses
I'm guilty of paying for IP expenses using my personal credit card due to my ignorance only to find out later it is not possible to be reimbursed from an LOC or Loan A/C so for the benefit or myself and others below are some possible scenarios I hope the more qualified SS members could provide some guidance on.
If one is able to release equity from an IP into another variable loan sub account so for example;
IP loan 1 300K - fully drawn
IP loan 2 100K - not fully drawn
Offset A/C - no contamination purely IP usage
If the funds are transferred from Loan Account 2 to the offset and if one pays a deposit to the RE trust account from this offset acct for another IP the link to the loan is lost and hence the deductibility of interest could potentially be denied, is this correct?
Is it also true that if a bank cheque for part of the 20% deposit for settlement of an IP is made out to the Solicitor or conveyancer's trust account that the link between the loan account i.e. in this case Loan account 2 is now lost as well to the income producing asset?
If a credit card was used to pay for IP expenses and at the end of the month the CC is paid using the funds from the IP offset account would the interest expense on Loan Account 2 be deductible? Should the payment of the CC be made directly from the Loan A/C instead?
Should one pay for IP deposits, expenses and interest directly from the Loan A/C or can it be done from uncontaminated offset accounts like in the above setup?
I am sure the above questions will help me and others new to the game be better educated.
Cheers
Stumpie
I'm fairly new on SS and have benefited very much on reading the various threads on here on so many topics that are relevant at different stages of my journey. Just want to say a big thank you to the owners of the forum and the regular contributors on SS for not only sharing their knowledge but also their time and mentorship to the newbies like myself.
I have a few questions below which I hope could be answered by the tax accountants, lawyers & mortgage brokers on SS and I'm sure it will help enlighten myself and others with your valued comments.
1. Capitalising Interest
I've read through the thread 'Interest on interest' by Corsa which from memory was first posted in 2006 and note that since then laws have changed and the general consensus is to get a private ruling on one's specific circumstances. Would this be correct?
Scenario 1:
PPOR loan 300K
IP loan 300K (standalone & not cross collaterised)
LOC 100K
PPOR offset A/C
Property Transaction A/C
Credit Card (only for IP)
If one used a strategy of putting all rental income and salary into the PPOR offset and using the Property Transaction A/C or Credit Card to pay for all IP interest and expenses and the Property Transaction A/C and Credit Card gets its source of funds from the LOC. My understanding is the ATO will apply Part IVA for this structure and deny the deduction for capitalising interest?
Scenario 2:
PPOR loan 300K
IP loan 300K (standalone & not cross collaterised)
LOC 100K
PPOR offset A/C
Property Transaction A/C
Credit Card (only for IP)
All salary income gets deposited into the PPOR offset and rental income is deposited into the Property Transaction A/C and any IP interest & expenses is paid out of this account and any shortfall is funded and sourced from the LOC. My understanding is that the ATO is less likely to apply Part IVA, would this be correct?
2. Loan structure & the mechanics of paying IP expenses
I'm guilty of paying for IP expenses using my personal credit card due to my ignorance only to find out later it is not possible to be reimbursed from an LOC or Loan A/C so for the benefit or myself and others below are some possible scenarios I hope the more qualified SS members could provide some guidance on.
If one is able to release equity from an IP into another variable loan sub account so for example;
IP loan 1 300K - fully drawn
IP loan 2 100K - not fully drawn
Offset A/C - no contamination purely IP usage
If the funds are transferred from Loan Account 2 to the offset and if one pays a deposit to the RE trust account from this offset acct for another IP the link to the loan is lost and hence the deductibility of interest could potentially be denied, is this correct?
Is it also true that if a bank cheque for part of the 20% deposit for settlement of an IP is made out to the Solicitor or conveyancer's trust account that the link between the loan account i.e. in this case Loan account 2 is now lost as well to the income producing asset?
If a credit card was used to pay for IP expenses and at the end of the month the CC is paid using the funds from the IP offset account would the interest expense on Loan Account 2 be deductible? Should the payment of the CC be made directly from the Loan A/C instead?
Should one pay for IP deposits, expenses and interest directly from the Loan A/C or can it be done from uncontaminated offset accounts like in the above setup?
I am sure the above questions will help me and others new to the game be better educated.
Cheers
Stumpie
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