Accountant too busy to help..

[MovingOnUp]

I have been avidly following this forum for a few weeks and learnt a lot more than I ever have outside of it. I must say there are some very admirable people with inspiring stories on this forum, and I?m hoping that some of you will be able to answer a few queries that I have. I've searched through the forum for answers but have ended up absolutely confused and our accountant seems to be too busy with the bigger fish to bother returning any of our calls.

To give you a brief background, my wife and I are moving in with family for the sake of my 2 year son (long story!), and want to rent out our PPOR soon if possible. Not realising we may head down this route some day, we have been diligently making extra repayments on the loan and currently have a redraw amount available of just under $90K. Original loan amount was $520K and current balance is sitting at $365K, not including $15K in the offset account. We have no other personal debt. I am a junior partner in a business and draw roughly $35k in profit for now before tax, paid into a family trust fund. Our wages are roughly around $165K combined paid into the offset account. I?m also in the middle of negotiating a lease on an additional new business for which I will need immediate funds to get it off the ground (Roughly around 50-60k to start with).

My queries are these:

1. Am I able to draw the redraw amount out of the loan to use for the cost of setting up the new business? Can it be done now before it becomes an investment property? From the few posts that I have read, it seems it can be done for other income producing purposes but not for say, buying a car for personal use. Bear in mind it hasn?t been put on the rental market yet.

2.We also want to purchase an additional investment property using the equity in the current property down the road. Is there a certain way we should go about setting up the loans which also utilises the family trust effectively for tax purposes.

There are so many questions swirling in my head but definitely don?t have the thorough knowledge and experience to pull it off without some sound advice. I?m hoping someone can guide me through this maze! Very eager to "learn the ropes" of property investment and thank you in advance....

Oh, and I think I need a new accountant too!

 

[Terry_w]

1. Am I able to draw the redraw amount out of the loan to use for the cost of setting up the new business? Can it be done now before it becomes an investment property? From the few posts that I have read, it seems it can be done for other income producing purposes but not for say, buying a car for personal use. Bear in mind it hasn?t been put on the rental market yet.

You may be able to redraw, but should you? Nope.

You should set up a new split to segregate deductible and non deductible. Whether the property becomes an investment property is not really an issue, that is a separate thing to consider.

You should also consider who will be running the ?business?. If a separate entity you will need to consider terms of the loan from you to it.

2.We also want to purchase an additional investment property using the equity in the current property down the road. Is there a certain way we should go about setting up the loans which also utilises the family trust effectively for tax purposes.

Yes. You should be setting up a LOC as a separate split. The borrowers of the LMI should then enter into a loan agreement with the trustee of the trust, on commercial terms. Note the borrowers and lenders cannot be the same persons.

 

[handyandy]

To be fair to the accounting communitee it is a busy time with the rush for the March tax time. But by all means move on to an accountant who understands your goals and understands that any client can become a much bigger client over time.

I assume that you can redraw the money into the offset? If so just do that.

This will make it 'your' money again and restore the PPOR loan back to what it should be. Obviously before you move out make sure you have a loan statement that shows the new balance and not the withdrawal transaction.

You should then be able to withdraw money from the offset account at will to use for investing.

Cheers

 

[Paul@PFI]

*SNIP*
My queries are these:

1. Am I able to draw the redraw amount out of the loan to use for the cost of setting up the new business? Can it be done now before it becomes an investment property?

Yes. You are free to do as you wish. Terry raises some good points. You don't want your money to be a gift to other persons who benefit from your cash. (ie how is it to be repaid ?) However is it tax deductible? No. The purpose of the new increased amount of the loan is not in connection with acquisition, improvement or maintenance of the PPOR / IP. The test for deductibility what you use it for not the loan security etc

2.We also want to purchase an additional investment property using the equity in the current property down the road. Is there a certain way we should go about setting up the loans which also utilises the family trust effectively for tax purposes.

Separate loans at all time. Your mortgage broker will advise on this. Blending loans create problems

One strategy to consider is if a spouse refinance of the PPOR can increase the deductible on the PPOR before it becomes an IP. Often duty prevents that approach but some states have concessions that allows it to be done duty free. All you need is a bank that assists.