Reply: 1
From: Rolf Latham
Hi DB
Here is a repost of something a couple of weeks ago that addresses part of your questions.
How to kill Private debt.
1. Loan Management and Manipulation Systems that "shift" private debt to tax deductible debt.
2. Get onto the property/shares bandwagon and generate equity growth in addition to that generated by your home. Realise that extra equity growth and use the after tax profits to pay down the home loan. This is a common strategy where there is a FIXED end in mind, for example someone is 50 and has a 30 year mortgage to go on their home.
Another version of this is to buy a run down property or one you can develop. Spend the time and the money to improve the equity position, refinance and do this again. In the process aquiring more property and thereby increasing (hopefully) your equity position.
3. Use a loan that allows you to pay more and or provides for an offset acct. For an average earning couple the effect of an offset loan can be to pay down a 30 year loan in about 17 to 19 years without any extra repayments. BUT beware actually do the sums whether this type of product is in fact suitable for you. You need the offset balance to be quite high for it to actually work in the way the banks set it up, because these loans tend to have an interest rate premium of between .5 to .7 %.
Many of my clients use a variety of systems that their tax advisors are "happy" with. The two more common ones not involving trusts are:
1. Instead of paying the operating costs of your business out of cashflow, you can borrow the operating costs and bank the cashflow.
This means in IP speak, instead of sacrificing your home mortgage when paying rates insuances and body corps on your property, borrow these costs instead. While your overall debt burden does not change the mix of the debt turns to tax deductible more rapidly. Commercial reason ? - cashflow.
2.Pay the interest on your Ips out of another line of credit. As long as you service the interest on the new line of credit there is no capitalisation of interest. Once again this means that the ratio of private to business debt increases over the traditional methods. Commercial reason ? Risk Management by increasing cashflow.
Seek the opinion of your own tax people on these, Opinions as to the "allowability" and indeed the benefits vary markedly
PIA is a great software package, a great tool for the analysis of one deal compared to another. It will in itself though not replace a defined property and financing strategy. I suppose thats why your are here
)
Ta
Rolf