LOC contamination...how difficult is it for accountant to work out?

Hi all,

We will need to use our LOC to pay for a few months of childcare.

I understand this will 'contaminate' the LOC, but we have no other choice at the moment except credit cards or selling some shares.

We will repay the money to the LOC a few months down the track.

How difficult is it for an accountant to apportion (is that the correct term here), the non-investment interest and the personal use interest when it comes tax time?

I am happy to pay a bit extra if that's what it takes.

Just need to know how serious an 'error' this may be.

Many thanks for your advice :)
 
A once off withdrawal for private use will not be that difficult.

However you cannot just pay the drawing back. When you repay to the LOC, the deductible AND non-deductible parts of the loan will be reduced in their respective portions. So you will mainly be repaying the deductible debt.

If it were me, I'd be using the credit card. An alternative is to set up a new LOC sub account to isolate the non-deductible drawing from the deductible drawing.
 
Thanks bene313!,

I've not heard of a LOC sub account...can it be set up quickly by the bank? Anything I should be aware of using this facility?

Still keeping the option open of using the cc :)
 
The sub-account is the ATO's suggestion. Best to speak to a broker or banker about the practicalities. As I understand, some of the unused limit on the LOC is isolated to a new account. This account is used for private drawings, which can then be paid off in full at a later date.
 
Am following up with query to accountant today (just waiting for response now).

When I called Wesuck, they appeared to not have a facility to isolate part of the LOC.

They said my options were a personal loan, where we'd get slugged early repayment fees, as we only need this money for a few months & will then repay it.

Or, take out another home loan...WTF!?!

Or open another LOC minimum $25K which I don't think the bank will do for LVR reasons.

Anyone have much experience with this?

Many thanks :)
 
Can you ask for a repayment holiday on the LOC (or PPOR loan?) and use that to pay the childcare?

Otherwise a credit card may be more economical given the short time frame.

Can family members help considering it is a short term issue?

Have you spoken to the child care providor? They may have payment options.
Marg
 
Thanks Marg.

Credit card is still up there on the list of options (just thankful we do have options).

I do have shares & managed funds I can cash in but that's a last resort. We do have the money in offset a/c as well as some in re-draw so that's an option too but not one I want to use...so not really up against the wall, just trying to work out the most tax-efficent/best way of doing it.

Can't ask family as we're usually the ones helping them with their mortgage & expenses every few months :(
 
Okay, given your options I suggest you use the money in the offset account. This will not affect any borrowings, nor will it trigger a CGT event that selling an asset would.

Just be sure to replace the money as soon as you can - regard it as a loan to yourself.
Marg
 
Thanks again marg,

Oops sorry, should've clarified, our offset a/c is also our 'everyday living/PPOR bills' a/c so it's only ever got a max of between $2K-$4K in it. I'm still on mat. leave so that's why we're not making any headway there at the moment.

we use cc for expenses like groceries etc & pay almost all of it bar a few hundred off every month from the offset.

Childcare is approx $765 every 2wks with a bond of this amount paid upfront. I've applied to return to work early but worst case scenario, it won't be til late May that I return. So roughly 3months @ 1530/month is $4600 plus the bond is $5300'ish.

Does that make a difference?
 
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