Line of credit vs Top up split with offset

[teddy1]

Not sure I understand what you are doing, but it doesn't sound good.

Is all your non deductible debt paid off?

Yes, all non deductible debt from PPOR is paid off.

This will be refinanced and PPOR valued to draw equity from to use as a deposit.

1 loan will have the deposit in it for IP1
2nd Loan will be the investment loan (balance of purchase price for IP)

Same steps for IP2, IP3 etc

So each IP will have a deposit loan and the investment loan

.?

 

[teddy1]

Structure

I'm thinking it will look like this- just added Loan 1 (IP expenses only)

Loan 1,2 and 3 all relate to IP1, same set-up for subsequent IP acquisitions (Loan 4,5,6) etc. So all loans are linked to one IP only for tax purposes.



PPOR
HOUSE
(320k Equity) --->

Loan 1 (IP1)
Loan of $15k?
for IP Expenses
REDRAW/OFFSET against Loan 2

Loan 2 (IP1)
DEPOSIT
(Equity from PPOR)
Principle & Interest

Loan 3 (IP1)
INVESTMENT
LOAN
Interest Only

 

[remingbi]

sorry to steal thread, but if 1 had a ppor i/o loan for 500k, and i saved up 200k, is it possible to deposit this 200k into the loan, redraw it out of ip deposits, to make my ppor loan 40% deductible i.e. 200k out of the 500k loan deductible

 

[Terry_w]

sorry to steal thread, but if 1 had a ppor i/o loan for 500k, and i saved up 200k, is it possible to deposit this 200k into the loan, redraw it out of ip deposits, to make my ppor loan 40% deductible i.e. 200k out of the 500k loan deductible

Yes.

But if you just redrew it out you would create a mixed loan. Part of every subsequent deposit would come off the deductible portion of the loan as well as the non deductible portion.

Solution is to split the loan.

 

[remingbi]

thanks terry. as always you're answers r very precise
there lies the problem
i suppose some banks r better than others in allowing splits
anyone have any experience with cba our anz for this

 

[Terry_w]

thanks terry. as always you're answers r very precise
there lies the problem
i suppose some banks r better than others in allowing splits
anyone have any experience with cba our anz for this

Yes both are good and you can split loans relatively easy.

One strategy that I use when setting up loans for clients is to create multiple splits from the beginning.

e.g. I just set someone up with a loan of $533,000 for an owner occupied property. I split the loan in 4. 3 small loans of about $25k each and one big one.
The client can save money in the offset and then when it reaches $25k she can choose to pay the $25k split off in full and then reborrow it to buy income producing shares. The interest on the loan will then be deductible with the dividends being used to pay into the offset account helping to speed up the next accumulation of $25k and so on.

Periodically the shares can be sold, CGT paid, and the proceeds used to pay off the non deductible loans speeding up the process of paying off the non deductible debt.

Starting off with 4 splits can save having to apply to split the loan down the track - maybe I should have done 6 splits.

 

[remingbi]

thanks terry
1.could u use one of those splits to draw down funds to pay rates, body corporate fees, negative gearing you pay etc etc, other ip expenses, whilst putting the same amount into your offset to reduce interest on poor
2.with cba anz, splitting loans from ppor does not require new application?ie not credit critical

thanks

 

[Terry_w]

You could borrow to pay rates etc. negative gearing - if you mean the shortfall then I would suggest you need specific tax advice on this, generally I wouldn't be comfortable with it.

 

[remingbi]

1.if this was possible to pay all ip expenses from redraw, is this good debt recycling policy
2.does the ato have a problem with covering shortfall from gds redrawn from loan

thanks

 

[Terry_w]

1.if this was possible to pay all ip expenses from redraw, is this good debt recycling policy
2.does the ato have a problem with covering shortfall from gds redrawn from loan

thanks

1. It could be if structured well

2. They do generally