Designating a sub-account as company's LOC

[Lotana]

I am looking for an opinion on the following strategy. (Please note that to make things clearer I will simplify the real situation).

Jim had a mortgage account split in two sub-accounts set up to finance his PPOR purchase.

Jim also runs a business servicing his clients through his company.

Jim has some spare cash, so he pays off the first sub-account.

Then he designates this sub-a/c (with zero balance) as his company's line of credit and draws some funds used as business operational expenses (to buy equipment, pay Jim's salary, etc). Interest payments on this sub-account are now tax deductible for the company.

What Jim has done - he made his non-deductible debt fully deductible without incurring any cost.

Is Jim correct or he might be in trouble with the ATO?

Say cheese

Lotana

 

[Sim]

I consider this to be essentially the same as what we did...

Paid off PPOR, then redrew money from that to fund deposits on IPs. The interest on this borrowed money is now fully tax deductible.

I don't see any problems with your scenario - so long as the funds are clearly distinguishable from the others !

Pays to get professional advice of course.

 

[DaleGG]

Hi

In general terms, I do not see a problem with this strategy. However, please also bear in mind that the LOC is in Jim's name and the company is therefore lending money to Jim to repay that initial personal LOC which may create FBT problems.

Time to get some proper advice, I would think

Have fun

Dale