A tax question
- Thread starter simonjulie
- Start date
Thanks folks
Food for thought!
Appreciated, as I still need things explained to me as if I where a five year old.
I suppose when one only has a property portfolio the whole process is a lot less complicated.
Property is my business but my business is not veiwed as such by some. I am a property investor. That title enables me to be a lot less restricted in some respects compared to mainstream business ownership.
Simon
Food for thought!
Appreciated, as I still need things explained to me as if I where a five year old. I suppose when one only has a property portfolio the whole process is a lot less complicated.
Property is my business but my business is not veiwed as such by some. I am a property investor. That title enables me to be a lot less restricted in some respects compared to mainstream business ownership.
Simon
simonjulie said:Thanks folks
Food for thought!
I suppose when one only has a property portfolio the whole process is a lot less complicated.
Property is my business but my business is not veiwed as such by some. I am a property investor. That title enables me to be a lot less restricted in some respects compared to mainstream business ownership.
Simon
Tell me Simon
To get your business to the size that it is you must have borrowed to pay the interest on your loans at some stage.
I know someone that borrowed on his credit cards, thats right cards, they were always up to the hock to pay his interest bills.
Nope! not so far
When things get a bit tight in the past I have sold a property to carry me through. I have borrowed for the purpose of renovation and investing in other areas like the stock market but I usually lose interest and go and buy another house instead.
We have always tried to have a pretty nuetral cashflow balance but since we have been buying property in the Big Smoke the balance is tipping. Hence time to look at new strategies.
Simon
PS the 10ml portfolio was only an example not my portfolio.
When things get a bit tight in the past I have sold a property to carry me through. I have borrowed for the purpose of renovation and investing in other areas like the stock market but I usually lose interest and go and buy another house instead.
We have always tried to have a pretty nuetral cashflow balance but since we have been buying property in the Big Smoke the balance is tipping. Hence time to look at new strategies.
Simon
PS the 10ml portfolio was only an example not my portfolio.
I'll try and clarify it, sorry if I confuse anyone
If your LOC is used to pay interest on a loan for a property the interest on your LOC in NOT deductable.
If your LOC is used to pay other property costs (PM fees, advertising, maintenance, insurance and rates etc..) then the interest IS deductable.
Obviously if you mix the two in one LOC then you have to determine what is deductable and what isn't and claim appropriately.
Does that answer your question If not I suggest you ask your question again cos I'm confused
If your LOC is used to pay interest on a loan for a property the interest on your LOC in NOT deductable.
If your LOC is used to pay other property costs (PM fees, advertising, maintenance, insurance and rates etc..) then the interest IS deductable.
Obviously if you mix the two in one LOC then you have to determine what is deductable and what isn't and claim appropriately.
Does that answer your question
If not I suggest you ask your question again cos I'm confused Cheeks said:I'll try and clarify it, sorry if I confuse anyone
If your LOC is used to pay interest on a loan for a property the interest on your LOC in NOT deductable.
If your LOC is used to pay other property costs (PM fees, advertising, maintenance, insurance and rates etc..) then the interest IS deductable.
Obviously if you mix the two in one LOC then you have to determine what is deductable and what isn't and claim appropriately.
Does that answer your question
If you can tell me what I use my LOC to pay for then your a better man than me.
If your using your LOC for these kind of payments I suggest you keep a record book to log all your transactions. I know my accountant has a spreadsheet to help keep records of deductable and non-deductable debt, perhaps you can check to see if your accountant has something similar.
The ATO will be happy to tell you for a "small" fee
The ATO will be happy to tell you for a "small" fee
KeithJ made a great comment in a thread replying to Salsa that showed the value of margin lending (Dont know how to post a link but thread was called "growing while LOE"). Interest in Shares can be capitalised unlike property interest.
You can borrow against property to buy managed funds.
Then margin borrow against the managed funds.
The margin loan can be...
Capitalised Interest
No documentation is required - no refinancing hassles
Can produce dividends or distributions as income which don't have to be used to pay the loan.
So as properties increase draw down equity to buy more managed funds.
As managed funds increase so does your margin loan limit.
As your margin loan limit increases you buy more yeilding units or shares and capitalise the interest and spend the dividends or distributions.
I think this makes sense.
MJK
You can borrow against property to buy managed funds.
Then margin borrow against the managed funds.
The margin loan can be...
Capitalised Interest
No documentation is required - no refinancing hassles
Can produce dividends or distributions as income which don't have to be used to pay the loan.
So as properties increase draw down equity to buy more managed funds.
As managed funds increase so does your margin loan limit.
As your margin loan limit increases you buy more yeilding units or shares and capitalise the interest and spend the dividends or distributions.
I think this makes sense.
MJK
Hang on!
I don't use a LOC the way you guys must.
The only LOC I have is fully drawn and the funds were used to buy more property years ago. I keep reducing it as I took back my titles from the bank as properties rose in value. Now my LOC only has one security on that loan.
Markp
I have managed to live off some of the rent while the retrieved equity growth has paid for some of the holding costs thus far. look at the example I gave.
If the holding costs in that example were 112K pa that means I could spend 112K of the rent on me if I wanted to. I tell you now that my lifestyle does not cost anything like that.
I think the factor that is alluding you is the amount of cash on hand(working capital) that one needs to make this strategy work. Let's add a working capital to the example of say $350K. this money may have come from previous equity grabs or sales or divdidends or whatever.
That means that the starting point for my strategy is a forward position based on cash on hand. Similar to that of a farmer who relies on good seasons for good yeilds.
I hope this helps
Simon
I don't use a LOC the way you guys must.
The only LOC I have is fully drawn and the funds were used to buy more property years ago. I keep reducing it as I took back my titles from the bank as properties rose in value. Now my LOC only has one security on that loan.
Markp
I have managed to live off some of the rent while the retrieved equity growth has paid for some of the holding costs thus far. look at the example I gave.
If the holding costs in that example were 112K pa that means I could spend 112K of the rent on me if I wanted to. I tell you now that my lifestyle does not cost anything like that.
I think the factor that is alluding you is the amount of cash on hand(working capital) that one needs to make this strategy work. Let's add a working capital to the example of say $350K. this money may have come from previous equity grabs or sales or divdidends or whatever.
That means that the starting point for my strategy is a forward position based on cash on hand. Similar to that of a farmer who relies on good seasons for good yeilds.
I hope this helps
Simon
simonjulie said:Hang on!
I don't use a LOC the way you guys must.
The only LOC I have is fully drawn and the funds were used to buy more property years ago. I keep reducing it as I took back my titles from the bank as properties rose in value. Now my LOC only has one security on that loan.
Simon
Your point being? Excuse my ignorance.
MJK
Hi MJK
My point is.
What has a LOC got to do with my original question? It has nothing to do with shares.
All I wanted to know is whether it was possible to borrow to pay debt. I have been told "yep" but you can't claim the interest on the new loan.
Simon
My point is.
What has a LOC got to do with my original question?
It has nothing to do with shares.All I wanted to know is whether it was possible to borrow to pay debt. I have been told "yep" but you can't claim the interest on the new loan.
Simon
Simon,
I was just trying to show a LEGAL way to capitalise interest in an investment portfolio and take yeild as sustainable personal income. I thought it was on point.
Perhaps when you mention holding costs you dont include interest?
You said......"If I were to borrow to service the holding costs,renovations, and new purchases of the portfolio, is the interest on the borrowings from my equity growth classed as a tax deductable amount against the current portfolio."
MJK
I was just trying to show a LEGAL way to capitalise interest in an investment portfolio and take yeild as sustainable personal income. I thought it was on point.
Perhaps when you mention holding costs you dont include interest?
You said......"If I were to borrow to service the holding costs,renovations, and new purchases of the portfolio, is the interest on the borrowings from my equity growth classed as a tax deductable amount against the current portfolio."
MJK
Hi MJK
Yep, that's what I meant(not including interest)
Sorry about the confusion and yes your example was good. Thankyou.
Simon
Yep, that's what I meant(not including interest)
Sorry about the confusion and yes your example was good.
Thankyou.Simon
Thanks Cheeks
Sounds like a good strategy.
Getting back to my strategy example.
Finding tax deductions is not as important as being able to borrow the funds to pay the interest as the person in my example would, I imagine, be carrying forward a reasonable after tax loss each year.(outgoings far outway income from rent and sales.)
So for this strategy to work better it may just come down to borrowing enough to keep the portfolio and the owners Lifestyle intact and let capital growth do its magic.
Simon
Sounds like a good strategy.
Getting back to my strategy example.
Finding tax deductions is not as important as being able to borrow the funds to pay the interest as the person in my example would, I imagine, be carrying forward a reasonable after tax loss each year.(outgoings far outway income from rent and sales.)
So for this strategy to work better it may just come down to borrowing enough to keep the portfolio and the owners Lifestyle intact and let capital growth do its magic.
Simon
If I may quote my father.
You can't get any more tax back than what your've paid.
I've taken a step back from earning a wage, down from a 48 hour week to a 32 hour week. Trying to get every sent back on the tax that I've paid isn't that difficult, with depreciation and interest deductions ect. So if somebody owned 10, 15 or more +cf properties wouldn't they be getting all or most of there tax back any way. So worrying about should I claim this and that doesn't matter as much.
John
You can't get any more tax back than what your've paid.
I've taken a step back from earning a wage, down from a 48 hour week to a 32 hour week. Trying to get every sent back on the tax that I've paid isn't that difficult, with depreciation and interest deductions ect. So if somebody owned 10, 15 or more +cf properties wouldn't they be getting all or most of there tax back any way. So worrying about should I claim this and that doesn't matter as much.
John
Thats right Simon.
If you dont need tax deductabilitythere are no ATO concerns. You can capitalise as much as you like on whatever you like. Tax deductability becomes irrelevant when you have no assesable income.
Once again a margin loan does not require income assesment by the lender...only equity. It could help you to borrow more when the banks say your servicability is maxed. Of course Low docs can also be used but require some assessment and refinancing activity.
MJK
If you dont need tax deductabilitythere are no ATO concerns. You can capitalise as much as you like on whatever you like. Tax deductability becomes irrelevant when you have no assesable income.
Once again a margin loan does not require income assesment by the lender...only equity. It could help you to borrow more when the banks say your servicability is maxed. Of course Low docs can also be used but require some assessment and refinancing activity.
MJK
