I've no PPOR. Where to park my cash?
- Thread starter Ray Brown
- Start date
Ray Brown said:Hi all,
like I said, no PPOR. i.e. all my properties are rented out.
I guess it depends on my risk tolerance - probably just answered my own question.
cheers
What are your requirement?
At Call?
Interest rate? ie return on capital?
Return of capital?
For the short term I use ingdirect.com.au
Cheers,
Thanks Simon,
well, by cash, I guess I really mean CASH. (at call)
I guess I could just put it into an offset account - but perhaps this is not the most tax effective as all my loans with offsets are IPs.
I have an equity manager account which has the highest interest.
When I was living in my PPOR, it was easy...
Perhaps I will buy/build another PPOR - with an offset.
And after all I have read, I still don't really understand the difference between an offset and a LOC.
cheers
well, by cash, I guess I really mean CASH. (at call)
I guess I could just put it into an offset account - but perhaps this is not the most tax effective as all my loans with offsets are IPs.
I have an equity manager account which has the highest interest.
When I was living in my PPOR, it was easy...
Perhaps I will buy/build another PPOR - with an offset.
And after all I have read, I still don't really understand the difference between an offset and a LOC.
cheers
Ray Brown said:
They do appear to be achieving the same result however the main difference is to do with ATO views on deductible interest.
When you draw funds from an LOC it is seen as a new loan. Depending on the purpose of this new loan will determine whether it is deductible.
Mixing an LOC with deductible and nondeductible debt is an accounting disaster.
Perhaps an example might help:
You have $10K spare cash. You park it in your LOC against an IP that is drawn at $120K - making the loan now $110K. You decide you need some plastic surgery to enhance your pecs and you use that $10K. Now unless you can link the surgery with income production you will now have $10K of your LOC that is not deductible. It gets worse - Nor can you pay this down ahead of the deductible interest. So for every $12 you pay into your LOC the ATO will determine that you have paid $10 against your IP debt and $2 against your Surgery debt. So until the loan is paid out you will keep that non deductible debt alive.
However if you use an offset then you are never touching your IP loan. You save interest whilst your $10K is parked there but you are never actually transacting it in and out of the IP debt so it doesn't contaminate your deductible debt.
I hope I have made it clearer.
Apologies if my plastic surgery analogy has hit a raw nerve with anyone with less than amazing pecs..... even you Jamie
I am neither an accountant nor a surgeon so seek professional advice before making any decisions.
Cheers,
Thanks Simon,
that clears it up for me. Thats probably why I don't get involved in LOCs. I am a messy accountant - so the money jar style offset account works well for me.
p.s.
How did you know I needed a pec enlargement? Thats spooky - like when you get those e-mails promising thicker-longer bits. How do they know?
that clears it up for me. Thats probably why I don't get involved in LOCs. I am a messy accountant - so the money jar style offset account works well for me.
p.s.
How did you know I needed a pec enlargement? Thats spooky - like when you get those e-mails promising thicker-longer bits. How do they know?
Ray, did you move out of your PPOR because of relocation reasons?
I was thinking about renting out my PPOR [no debt]and making it an ip and renting a place to live in.However finding something cheap to rent is proving difficult.There is no point doing this unless the rent l recieve is greater than the rent l pay.
cheers yadreamin
I was thinking about renting out my PPOR [no debt]and making it an ip and renting a place to live in.However finding something cheap to rent is proving difficult.There is no point doing this unless the rent l recieve is greater than the rent l pay.
cheers yadreamin
Ray Brown said:
Ray,
I am in the same situation with no PPOR to use as an off-set.
I have my spare cash sitting in an off-set to one of my IP loans. This is still better than having it in ING or similar as the interest rate is higher.
Example:
you have $10,000 cash
Off-set saves interest at 6.71% --> leading to a smaller interest bill (higher tax to pay due to less deductions). $671 less interest to pay, so less deductions --> $359 effective saving pa. (assuming 46.5% tax)
ING pays interest at 5.6% --> leading to a higher income (higher tac to pay due to higher income). $560 interest earned so tax payable at 46.5% --> $299.60 extra income.
So you are $60 better off for the year by putting the $10,000 in the offset than by having it in ING.
I think I have this correct...
Cheers
Mike
Thanks Mike F,
thats where its parked at the moment.
If only I had parked it in AUM 2 months ago....up 1000% or so.
http://finance.yahoo.com.au/q?s=AUM.AX
thats where its parked at the moment.
If only I had parked it in AUM 2 months ago....up 1000% or so.
http://finance.yahoo.com.au/q?s=AUM.AX
Mike F said:Ray,
I am in the same situation with no PPOR to use as an off-set.
I have my spare cash sitting in an off-set to one of my IP loans. This is still better than having it in ING or similar as the interest rate is higher.
Example:
you have $10,000 cash
Off-set saves interest at 6.71% --> leading to a smaller interest bill (higher tax to pay due to less deductions). $671 less interest to pay, so less deductions --> $359 effective saving pa. (assuming 46.5% tax)
ING pays interest at 5.6% --> leading to a higher income (higher tac to pay due to higher income). $560 interest earned so tax payable at 46.5% --> $299.60 extra income.
So you are $60 better off for the year by putting the $10,000 in the offset than by having it in ING.
I think I have this correct...
Cheers
Mike
Unless, like me, you have a spouse on a lower tax bracket.....
