Debt recycling - still possible?

[jrc77]

With the ATO crackdown on capitalizing of debt (with an aim to "pay off your home sooner"), what debt recycling is still possible?

Say you had the following loans:

PPOR loan $300k
IP1a loan $130k (secured against PPOR)
IP1b loan $430k (secured against IP1)
IP2a loan $260k (secured against PPOR)
IP2b loan $560k (secured against IP2)

And both IP1 and IP2 where negatively geared, any thoughts on what debt recycling may still be possible? With aim to pay down non deductable debt ASAP.

Regards,

Jason

 

[Terry_w]

What about using a LOC - and not claim the interest.

All rents and incomes could possibly be paid into the offset on the PPOR and this could save your tax.

Run some numbers and see what happens.

 

[Rolf Latham]

various forms are still acceptable to many tax pracs

The core question, is what does your tax prac recommend?

t
arolf

 

[MRO]

various forms are still acceptable to many tax pracs

The core question, is what does your tax prac recommend?

t
arolf

Unfortunately it is not the tax pracs who decide what is legal or not. It is generally the ATO who will have the final say or the courts if you are unhappy with the ATO's decision.

Private binding ruling may be the only safe bet if you want to be certain with your own circumstances.

 

[Rolf Latham]

Unfortunately it is not the tax pracs who decide what is legal or not. It is generally the ATO who will have the final say or the courts if you are unhappy with the ATO's decision.

Private binding ruling may be the only safe bet if you want to be certain with your own circumstances.

Agreed.

My point was,with anything thats grey, get specific advice, and let those qualified folks make the call.

The way its headed with our advisory system, we will need to ask for a PBR if its ok that the bank used their suspense account to draw a bank cheque, and the funds didnt go directly from our loan account

ta

rolf

 

[Paul@PFI]

Tax Practitioner View

I'm not sure I agree with the comment that suggests that the ATO are the determinator of what works and what doesnt. Arguably the ATO just administer tax law, they dont write it or make policy. Look at the FBT changes as example - Bet ATO aren't happy with ALP for that view. It dumps problem on ATO. The final arbitrator tends to be the AAT & Federal Court. I'm always puzzled by this fear of the ATO. In my view they are some clever and stupid people who administer the tax system. A good tax adviser should know what works and what wont and why. If its in doubt then isnt there a problem ?? Its their job to ensure it does work. If they push boundaries it arguable it doesnt work or Part IVA will kick in as example.

"If it sounds to good to be true"...

PBR's are often not worth paper they are on. The "P" for private indicates one major fail when promoters use them. Have seen many and more holes than swiss. Yet the promoters tell nieve they work. Its "subject to"... and applies only that taxpayer. ATO avoid giving class rulings since Petroulis fouled waters reducing taxpayer confidence in things that do work. Example is the old employee benefits trusts schemes. Still out there ?? Yep - ATO shut the door years ago but there are gullible and greedy who believe they do work.

 

[Aaron_C]

The fear of the ATO is justified because you have to prove your innocence after they make an allegation against you.

 

[jrc77]

And the ATO have a lot larger budget for fighting than the average investor!

Jason

 

[jrc77]

What about using a LOC - and not claim the interest.

All rents and incomes could possibly be paid into the offset on the PPOR and this could save your tax.

Run some numbers and see what happens.

Maybe I'm missing something, but I'm not sure sure how this would help.

Say I open a LOC which I use to pay for all investment expenses (instead of paying out of my pocket/rent received). The additional money goes into my offset against PPOR (or into the PPOR loan) - reducing the amount of non deductable debt. However in the meantime the LOC is increasing at the same rate - and if I'm not claiming the interest on this it is effectively non deductable as well.

Regards,

Jason

 

[Terry_w]

Maybe I'm missing something, but I'm not sure sure how this would help.

Say I open a LOC which I use to pay for all investment expenses (instead of paying out of my pocket/rent received). The additional money goes into my offset against PPOR (or into the PPOR loan) - reducing the amount of non deductable debt. However in the meantime the LOC is increasing at the same rate - and if I'm not claiming the interest on this it is effectively non deductable as well.

Regards,

Jason

If you borrow to pay investment expenses this will free up cash to pay off your main residence loan sooner.

But taking this one step further and borrowing to pay the interest on the investment loans will speed things up even more. ATO don't like this, naturally. So what if you still did this, but didn't claim the interest on the LOC? You would still be paying down the home loan sooner, but not obtaining a tax benefit as you are not claiming the extra interest.

End result is a home paid off sooner, but a higher LOC - I wonder if the interest on this LOC could then be deductible from that point on. It would all relate to the investment property expenses...