How to set up accounts for investments with no tax/tax return complications

[r3ckless]

Hi All,

I'll give a quick run through of my pending situation;

• Firstly I bank with CBA
  
• I have purchased off the plan with completion of investment property "OTP" to be completed mid 2014.
  
• I have just signed a CoS yesterday for investment property "UNIT 2" due to settle approx 6 weeks from today.

The way I am structuring the accounts/loans is:

Personal:

1. Savings Account
2. Credit Card

OTP:

1. Loan 1 - variable
2. Loan 2 - fixed
3. Transaction Account for OTP property
4. MISA OFFSET Account for Loan 1 (variable)

UNIT 2:

1. Loan 1 - variable
2. Loan 2 - fixed
3. Transaction Account for UNIT 2 property
4. MISA OFFSET Account for Loan 1 (variable)

So quite simply;

1. my salary/personal expenses will come in/out of the personal savings account/credit card respectively
   
2. My rental income will go into the corresponding transaction account. My strata/levies/rates/water will go out of the corresponding transaction account
   
3. My dedicated savings will go into the corresponding MISA offset account for each property
   
4. My calculated "outgoings" for each property will go into the corresponding transaction account

I just want to know is this the best way of simplifying everything, keeping the rental income/expenses for each property separate and accountable.

Any positives/downsides to structuring it like this?

Thanks in advance!

 

[Aaron_C]

nothing wrong with what you've proposed....it will make it easier for you to isolate the items come tax time.

 

[r3ckless]

Wow, thanks for the super quick response Aaron_C!

Now that I have set out my proposed structure...

As I mentioned from point 3 of my intentions;

3. My dedicated savings will go into the corresponding MISA offset account for each property

Will there be an issue if say one of my personal goals is to save up $10k to purchase a new car in say 2016..... if I periodically save $x towards it each fortnight, and then after a few years take it out and use it to purchase a car... any tax implication or anything of that nature?

 

[Aaron_C]

There wouldn't be a tax implication because you are just using savings account to pay for a (presumably) private expense which a car usually is....don't overthink. Lawyers / accountants like to put the fear of God in all of us but this is honestly a very simple thing.

 

[r3ckless]

Ok thanks.

So just to clarify, I can put personal savings with the intent to use it for anything into the MISA investment loans yes with no tax issues?

 

[Aaron_C]

Yes because the MISA is offset money, not the loan itself.

 

[r3ckless]

Many Thanks!

 

[jrc77]

r3ckless,

Note also that rumour has it that the much awaited transactional offset account will be released by CBA later this month. This would allow accounts 3 and 4 to be combined.

Do you have any other loans for private debt? ie. a PPOR loan?

Regards,

Jason

 

[r3ckless]

Hi Jason,

Yeah the CBA Transactional Offset account is 100% coming! Im not fully aware of all the details however I like to keep each property all separate etc.

No i dont have any ppor. very new investor....

 

[r3ckless]

Another questions as well;

First OTP property will have a loan balance of $495,000. This loan is 50/50 split in mine and my partners name.

Second unit 2 property (which will settle first) will have a loan balance of 80 me / 20 her

This unit is 7 years old whilst the OTP will be brand new. To claim back as much tax as possoble for me in the future, which offset account should I put the bulk of my extra savings, the OTP or unit 2 loan? THis is obviously a decision I will be doign when both proeprtys settle... so i still have until March 2014 at least to decide haha!

 

[D.T.]

Another questions as well;

First OTP property will have a loan balance of $495,000. This loan is 50/50 split in mine and my partners name.

Second unit 2 property (which will settle first) will have a loan balance of 80 me / 20 her

This unit is 7 years old whilst the OTP will be brand new. To claim back as much tax as possoble for me in the future, which offset account should I put the bulk of my extra savings, the OTP or unit 2 loan? THis is obviously a decision I will be doign when both proeprtys settle... so i still have until March 2014 at least to decide haha!

Note firstly that the ATO doesn't really care who's name is on the loan. It's the split of the names on the title of the property that is important.

What tax brackets are you and your wife in? In general terms, the one with the better cashflow position should be in the lower brackets name. This is something you need specific advice on, because the properties cashflow characteristics will change over time and so may yours and your wifes tax brackets. It may even be better to buy them in a discretionary trust, then you could apportion the profits to whoever it suits best which could change every year.

 

[r3ckless]

Sorry i shouldnt have said loan. Yes i meant title. My mum did give me a heads up of the percentage split as i should look towards long term as well. Will probably just acquire a 3rd ip if i want to even up or concentrate the percentiles..

 

[Paul@PFI]

Offsets Accts

I just met a client who has a $200K credit balance in offset and about to enter into next IP deal using the $200K plus a new loan. It reminded me to share this tip....

I suggested he credit the $200k against the mortgage. Then redraw it ensureing the $200K is used for the acquisition. Thus it is now a tax deductible borrowing where drawing from offset it is not.

He has spoken to his broker who has organised the seperate account on redraw so his mortgage and the IP $200K arent "blended".