IP Expenses Loan advice.

Ever since starting the property investing journey I have been paying for IP expenses using 'cash'. I'm starting to think about debt recycling the expenses.

I have two properties I want to start borrowing money for the expenses of.
Expenses I am thinking of are rates, water, strata, insurance, pm fees, maintenance/repairs/improvements.

This is the way I see it being setup. Any problems, now and in the future, with this setup?

- PPOR Loan with offset account (rents go in here and interest for all loans come out)

- Loan for IP1 (interest paid from ppor offset account)
- Loan for IP2 (interest paid from ppor offset account)
- Loan for IP Expenses. (interest paid from ppor offset account)

Should I have an Expenses Loan for each property?
If I keep only one expenses loan what happens when one of the properties is sold? Does it get messy with only being able to then claim the interest on the expenses from only the remaining IP?

Can you claim the interest on borrowings for expenses of a sold IP?

Am I allowed to claim interest on the money borrowed to pay the pm fees? Does anyone know of being able to pay for the pm fees rather than have them deducted from the rent payments?

Thanks.
 
Should I have an Expenses Loan for each property?
If I keep only one expenses loan what happens when one of the properties is sold? Does it get messy with only being able to then claim the interest on the expenses from only the remaining IP?


No need for separate loans. You just need to keep track and aportion per property.

Can you claim the interest on borrowings for expenses of a sold IP?

Generally no. income related to the borrowings is gone.

Am I allowed to claim interest on the money borrowed to pay the pm fees?

Yes managment fees are an expense associated with the production of income. Just ask the agent to accomodate you - which may take some convincing/
 
If the loan for an IP is a distinct loan then provided you have adequate available credit just pay the expenses direct from loan. To avoid ATO concerns if they review it just reference what the payt is for eg "Water Rates"....

Simple.

Just remember you aren't building equity. So if the loan is IO this arrangement wont work. If its P&I then why not do IO if the equity isn't what you chase ?? I'm always confused by people who chase a slightly elevated deduction by borrowing more. Ownership = equity.
 
Paul, I'm using one of those new CBA 100% Offset accounts that let you split it into multiple 'virtual' accounts and then you have the control to hide them in your online/apps views. The plan is for every dollar borrowed for expenses I will put a dollar into a hidden virtual offset account linked to the ppor.

Hope that makes sense.

Thanks for the advice.
 
Is the offset linked to the IP loan or to your home ??

If it your home . Good. If its the IP its a futile exercise. (Yes I often see people who offset linked to the deductible loan rather than a non-deductible). If there is no non-deductible loan this also is fine - But futile doing the property expenses through the loan.
 
For this strategy to work.. is a private ruling lways required?


Secondly. When you let interest capitalise. Lets imaginr for argument sake i set up a loc with limit of $1m. Now i only have one property. If yeafly expenses and interest equate to $30k. Am i free to let this capitalise over 10 years. So the debt balance would be $300k plus interest capitalisation for past 10 years.. is the interedt on this debt all deductible as long as these expenses are rrlated to incone produci asset?
 
For this strategy to work.. is a private ruling lways required?

Which strategy are you referring to?


Secondly. When you let interest capitalise. Lets imaginr for argument sake i set up a loc with limit of $1m. Now i only have one property. If yeafly expenses and interest equate to $30k. Am i free to let this capitalise over 10 years. So the debt balance would be $300k plus interest capitalisation for past 10 years.. is the interedt on this debt all deductible as long as these expenses are rrlated to incone produci asset?

Depending on the loan you are free to capitalise. But whether you can claim this without the ATO denying the deduction is another matter.
 
So how do we ensure the ato can deem this interest capitalisation being ok to claim?

You should probably get a private binding ruling to make sure it is ok.

The reason for capitalising will be important. If you are doing it to pay off the home loan sooner then the ATO has indicated they can deny the deduction. Doesn't necessarily mean they will, but the could.
 
You should probably get a private binding ruling to make sure it is ok.

The reason for capitalising will be important. If you are doing it to pay off the home loan sooner then the ATO has indicated they can deny the deduction. Doesn't necessarily mean they will, but the could.

Ta. And what suitible reasons are deemed acceptable for the private ruling?
 
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