Increasing loan for extension

[pale ale]

Hi,
We are planning to build an extension on our PPOR.
One day this house will be an IP.
Is there any problem placing the 100k (increasing loan from 531k to 631k) which has been approved by CBA for this extension into the MISA offset. This way we can dip into it as required for our building.
This extra 100k, will then be tax deductible in the future when we rent out the house?
Thanks for any advice!

 

[Corey Batt]

Keep the funds in the redraw as to show a clear delineation between investment funds and personal. Otherwise you may put non-investment funds into the MISA and it starts to get hairy designating what portion is not for investment and what is.

MISA for your personal savings, redraw to retain your borrowed investment funds. Keeps the accountant and ATO happy.

 

[Peter_Tersteeg]

Simply move the funds from your MISA account to the loan redraw where they can remain until you need them. This way you'll avoid any tax issues.

 

[pale ale]

Thanks CJ.
I'm unsure if there is redraw on this loan. We have the MISA set up. I thought this would be the easiest way to keep track.
We plan to do most of the interior ourselves, so will probably need 80k for the structure, then dip in when we want to get the tiles, fittings etc.
My partner gets interest subsidy through her employer, so we dont really keep more than 1k in the MISA. It is better to have our money elsewhere (I think)

Is it possible to please explain a bit better the difference between redraw and MISA. This will be our PPOR for at least another 5 yrs

 

[Peter_Tersteeg]

The MISA is an offset account for the CBA (although it's not as well implemented as some other lenders offerings IMHO).

An offset account is used to keep your money separated from money that's borrowed. This can have huge tax benefits in various scenarios. There's literally hundreds of threads on Somersoft talking about offset accounts and how they can be applied. Spend some time looking through the finance section.

The CBA MISA account is used to offset their variable loan. The CBA variable loan does have a redraw facility.

Can you give us more detail on how your wife's interest subsidy is applied to your situation?

 

[pale ale]

My wife works for Rio Tinto. They pay 80% of the interest on our PPOR loan. This is their incentive to keep the workers in town.
Rio have given us permission to increase the loan. The CBA is willing to give us another 100k.
Maybe I should talk to the loan manager, however, I doubt she understands these situations as well as you guys.
Thanks

 

[pale ale]

Also, to make things more interesting. The extension is designed as a self contained "Granny flat". We could rent it out immediately after completion, but missus is pregnant and doesnt want strangers around for a couple years. Would this info change any opinions on best way to structure this loan?

 

[Terry_w]

There are potential tax issues.

I would suggest you set up a LOC to avoid these issues.

 

[Aaron_C]

Put the excess funds in redraw and be done with it!

 

[pale ale]

Put the excess funds in redraw and be done with it!

Yes, I will do this. I have been following this site for a couple years and trust the general brains trust here.

THANKS!!

 

[Terry_w]

But how do you get the funds into the redraw?

I've just done a small increase for someone with another lender and they refused to just increase the loan and leave the money there. The money had to be deposited into a savings account.

Less than ideal situation but the loan was too small for a LOC.

 

[Peter_Tersteeg]

My wife works for Rio Tinto. They pay 80% of the interest on our PPOR loan. This is their incentive to keep the workers in town.
Rio have given us permission to increase the loan. The CBA is willing to give us another 100k.
Maybe I should talk to the loan manager, however, I doubt she understands these situations as well as you guys.
Thanks

I'd do the maths on a scenario where you put the funds into an offset account against an IP - preferably one that's owned by the lower income earner in your household. This would make the IP either positive cashflow or more positive.

Let the company pay 80% of your PPOR interest while they're willing to do it (I'm assuming no fringe benefit or other taxes on this). This is probably worth a lot more than the tax you'll pay in rental income from an IP.

Make sure the funds go into an offset account as someday in the future when you no longer get the employers incentive you can then move those savings over to your PPOR. Does your wife receive the incentive whilst she's on maternity leave?

 

[pale ale]

Yes, she still receives the interest benefit whilst she is on PAID maternity leave

 

[pale ale]

Well, we have some different ideas come up there. I will get the missus to request the money goes into the loan for redraw. If CBA dont allow that, should we put it in a new account to keep track of it, it will only be used for this extension project.
My IP's are with St George and dont have offset.

Thanks for your advice guys, this is soooo difficult to try and keep it legal.

 

[Terry_w]

Well, we have some different ideas come up there. I will get the missus to request the money goes into the loan for redraw. If CBA dont allow that, should we put it in a new account to keep track of it, it will only be used for this extension project.
My IP's are with St George and dont have offset.

Thanks for your advice guys, this is soooo difficult to try and keep it legal.

But is it possible to get the money put straight into the loan?
I have just had trouble with ANZ re this and they said it couldn't be done. Money had to go into an ANZ savings account and then the client can put it back into the loan. Dangerous from a tax perspective.

A LOC would be much preferable.

 

[pale ale]

The other issue with Rio Tinto is the loan acc number cant be changed. This is where we currently sit with our application, as the increased loan had a new acc number and Rio were being difficult. Nothing has been finalised yet, so we can get this done properly I hope.

 

[Rolf Latham]

But is it possible to get the money put straight into the loan?
I have just had trouble with ANZ re this and they said it couldn't be done. Money had to go into an ANZ savings account and then the client can put it back into the loan. Dangerous from a tax perspective.

A LOC would be much preferable.

if its an SVR with ANZ its generally doable..........

come audit time, the ATO ( or more to the point the AAT further on) would have to take into consideration the practicality of "nexus" where a client was constrained by lending product considerations.

wont be long now where a PBR will come out to show the issues of parking offset funds against an investment loan, reserved only for that specific purpose, this when combining the facilities = LOC sort of. That PBR will be either yay or nay and can be reasonably relied upon.

ta
rolf




ta

rolf

 

[Terry_w]

if its an SVR with ANZ its generally doable..........

come audit time, the ATO ( or more to the point the AAT further on) would have to take into consideration the practicality of "nexus" where a client was constrained by lending product considerations.

wont be long now where a PBR will come out to show the issues of parking offset funds against an investment loan, reserved only for that specific purpose, this when combining the facilities = LOC sort of. That PBR will be either yay or nay and can be reasonably relied upon.


ta

rolf

Good news about the PBR. No one else will be able to rely on it, but at least it will indicate the ATO's stance on it (in one instance).

My client had a SVR with ANZ and dispite trying several avenues we were told it wasn't possible. Had to empty a savings account and hope the funds will be traceable and this will satisfy the ATO.

 

[Rolf Latham]

My client had a SVR with ANZ and dispite trying several avenues we were told it wasn't possible. Had to empty a savings account and hope the funds will be traceable and this will satisfy the ATO.

thats coz u asked on a Tuesday or a Thursday

Monday wed and Friday is ok

ANZ is the PITS when it comes to any form of consistency on anything thats really important : (

ta
rof

 

[pale ale]

Thanks for your advice.
Is it OK to open a new acc. such as CBA Goal saver (we have one already with 80K getting 4.9%), put the 100k in there and use it for the extension costs.
So damn confusing
It will be traceable, and if we get short term tennants in the "granny flat" it is deductible? Do we need tennants for 12 months or so?