Loan structuring advice

[john2]

Hi,

I need some advice to maximise the deductibility of my loan. I am self employed and going for a 90% lo doc loan. As I cannot get an offset account, I am planning to get an interest only loan. I will have about $100,000 sitting in my Business bank account for working capital. When I need to pay for some business expenses, say $50,000 I simply make a lumpsum repayment into my loan account and then redraw it and put it back in my Business accont to pay for expenses. Interest on this $50,000 will be considered as deductible. Now say I need another $20,000 I do the same thing and redraw. When I get some cash back from my clients say $30,000 I put it back in my loan. Now does this mean I have paid back my deductible loan. If so, which loan have I paid of. The first redrawn loan or the second redrawn loan. How does the tax office distinguish. Have I chosen a correct loan structure. Please advice.

John

 

[alexlee]

I'm not clear on this, but even though it is just one loan, will it pass that issue the ATO had with split loans? i.e. say you have a balance of $200k, $150k non-deductible, $50k deductible. If you make a $20k repayment, are you allowed to say you 'pay off' $20k of the non-deductible portion? It sounds like that split loan rule where you can only do so proportionately.
Alex

 

[Rolf Latham]

Hi John

Whats the starting purposes of the loan please ?

ta
rolf

 

[julia]

Go John2 you have got the drift, off course you are not doing it for the dominant purpose of a tax benefit (not that there is anything wrong with that, mmm other than Part IVA) Anyway you have to apportion the repayment on the same ratio that the loan is to business and private use when you make the repayment. As you can see it won't take long till nearly all that loan is deductible.

 

[john2]

The starting Purpose of the loan is for PROP.

Does it mean that say I have a starting loan of $500,000 which is non deductible, I put a lumpsum of $100,000 and redraw it for my business thus making $100,000 as deductable. Then say I put a lumpsum of $50,000 back into the loan, so I will be paying $10,000 of deductible debt and the remaining $40,000 of non deductible debt as 20% of the original loan was deductible.

Am I on the right track. Any sugestions for a better structure are welcome.

John