is this the right way?

[MFG]

Hi,

First of all, i like to take this opportunity to thank you, everyone here. esp the investment gurus that has provided lots of information and answers to my questions.

this is my first time doing it, as 1st IP is settling today and this is my plan to flow the funds. but is my structuring of the accounts the "right" way? and is the flow of funds appropriate?

situtation:
1 PPOR owing 300k (1 home loan account, A) (1 offset account against account PPOR, B), bank value PPOR at 500k, LOC available of 100k, account C.
1st IP owing 300k. 20% finance from LOC account C above. 80% on home loan (home loan IP account D).
I request bank to open another "saving" type account", E.

Hence account
A - PPOR home loan
B - offset against PPOR
C - LOC 100k from PPOR
D - IP home loan account
E - another saving account

Here is how i am going to transfer funds around. Objective here is
1. maximise my payment to PPOR
2. maximise my tax return

Rental Income
rental income will be paid into account E. I will transfer it into account B to offset my personal PPOR. this maximise my payment of PPOR using rental income.

IP Interest expenses
20% of the IP are funded by LOC account C. Interest from this is paid by LOC C.
80% of the IP are funded by the home loan account D. Interest from this is paid by LOC C.
this method increases my tax return.

Limitation,
LOC account has a limit of 100k. Hence, i may look into increasing my LOC amount. interest for 300k per year is easily >20k.

Once my PPOR is "paid" for, then my strategy will/may change.

Thanks for reading.

Any thought on this?

Cheers,
Scott

 

[wobbycarly]

Hi Scott,
I like this. A couple of questions to consider.

1) why do you need account E? Why not deposit rent directly into offset (B)?
2) Paying your interest from C will indeed maximise your tax deductions. What is your justification to satisfy the Part IVA Anti-Avoidance Rules? ie. How do you "prove" that you are not avoiding tax with this arrangement and the structure justifies your goals?

I wish I'd used a broker for our first couple; that would have potentially helped me set up a similar structure!

 

[Rolf Latham]

The commercial reasoning of the capitalisation of interest has always been to allow one to buy more IPs more quickly. While it can reduce relative PPOR debt more quickly, this is an unplanned consequence in most cases , and is a required "in between" to obtain the next IP

Ultimately more IPs means more incometax from rent, or more cap gains from sales

ta
rolf

 

[wobbycarly]

Rolf, that's niiiice! Once again, wish I'd known some of this stuff 10 years ago!!

You reckon a "re-structure" with a new IP would allow for this same reasoning?