LOC for shares against PPOR

Hi,
We currently have a 3 loans linked to our PPOR. So PPOR loan and 1 line of credit and one investment loan.
The investment loan is to be used for deposits/costs (20%) for investment properties (Loan1) and the other loan is for purchase of shares/managed funds (Loan2).

I was considering how to increase the limit on Loan1 for future property purchases and whether it would be possible to transfer Loan2 to another type of loan that is secured against the shares/managed funds we currently own. Has anyone done something similar? Key is to retain tax deductions on interest for Loan2.

Bank is Westpac, Loan2 is an Equity access loan. Loan1 is a Rocket Investment Loan .
Loan2 has limit of 300K, owe 150K and value of shares/MFs is approx 450K.

Also would prefer to have Loan2 not linked to PPOR with potential implications if we sold the PPOR. Lets say we sold and went travelling for example and don't immediately purchase another PPOR - how would we retain Loan2 that we don't want to pay down at that time? I guess we have the same issue with Loan1?
 
The loan for the shares could possibly be changed over to be securred by the shares themselves - what LVR would it be? ie value of the shares to the loan for the shares. It would be very dangerous with margin calls if the shares drop.
 
From my reading of it you have $450k of shares and a loan of $150k for it.

Take out a margin loan and lodge the $450k of shares as security for it. You can then do a draw down on the margin loan and pay it directly (so don't mix it with any other funds along the way) into your current Loan 2. The refinancing principal would then apply to this debt and the interest remain deductible.

Your LVR on the margin loan would be 33% - so fairly conservative as far as margin loans go. There would of course be the risk of a margin call if the shares dropped a lot, and you will be paying a higher interest rate on the margin loan.

Regards,

Jason
 
Im in the midst of doing something similar. I want to build a share portfolio of blue chips with high divvies.

This is my proposed structure but waiting on a property settlement to go thru hopefully end of April so I can rap this up by EOFY:

Borrow one of my IP up to 80% (currently 75%) and obtain $40k from it.

Park the $40k into an offset account for another home loan which is variable

Do interest in advance on the loan which I borrowed $40k from which would now have a total balance of $90k owing. IIA for 2 years I would get a rate around 4.50% and yearly interest is $4k per year. From the $40k in an offset account debit $4k to pay for the years interest.

Use the $36k to purchase blue chip shares, use a margin loan to buy up to $10,800 in shares so ML LVR would be 30% and have the dividend payments reduce the ML twice a year. As the interest is already paid for the $40k home loan top up, that is looked after and the divvy payment should have the interest and some principal of the ML,

rinse & repeat.
 
Im in the midst of doing something similar. I want to build a share portfolio of blue chips with high divvies.

This is my proposed structure but waiting on a property settlement to go thru hopefully end of April so I can rap this up by EOFY:

Borrow one of my IP up to 80% (currently 75%) and obtain $40k from it.

Park the $40k into an offset account for another home loan which is variable

Do interest in advance on the loan which I borrowed $40k from which would now have a total balance of $90k owing. IIA for 2 years I would get a rate around 4.50% and yearly interest is $4k per year. From the $40k in an offset account debit $4k to pay for the years interest.

Use the $36k to purchase blue chip shares, use a margin loan to buy up to $10,800 in shares so ML LVR would be 30% and have the dividend payments reduce the ML twice a year. As the interest is already paid for the $40k home loan top up, that is looked after and the divvy payment should have the interest and some principal of the ML,

rinse & repeat.

have you sought tax advice on the deductibility of interest for this?
 
R3eckless, I think you have some issues there by depositing the funds into an offset account. Unlikely to be deductible in my opinion. As Terry said, Check with your accountant.
 
R3eckless, I think you have some issues there by depositing the funds into an offset account. Unlikely to be deductible in my opinion. As Terry said, Check with your accountant.

I was thinking more along the lines of the borrowed money being used to pay the interest and TD 2012/1. But you are right, borrowing and parking in an offset is another issue and could ruin the deductibility
 
Hmm well the money.woukdnt be sitting in the offset account long. Totally.forgot about using $4k of the borrowed fudns to fund the interest in advance so good point.just on that. What if i stilk use the $4k to pay for the interest initially but over the next 12 momtjs i end up having $40k in income producong shares?
 
Even though there is a TD or TR saying otherwise?

Yes. It all depends on how it is done. And I don't know of any TD or TR, only a private ruling.

Deductibility can be ruined if borrowed money is mixed with non borrowed money, easy to be done with an offset account - even accidently.
 
Hmm well the money.woukdnt be sitting in the offset account long. Totally.forgot about using $4k of the borrowed fudns to fund the interest in advance so good point.just on that. What if i stilk use the $4k to pay for the interest initially but over the next 12 momtjs i end up having $40k in income producong shares?

Doesn't matter how long the money sits in an account. 1 min of mixing borrowed and non borrowed would mean interest denied in full.
 
I jsut wanted to touch base here. Just to avoid any mishaps.... Still considering borrowing the $40k.

Now my plan for the funds is to use $4k to pay for the interest in advance for the investment loan. I believe this is tax deductible as it is an expense related to an income producing asset ie my ivnestment property.

The remaining $36k is to be used to purchased shares in the hope of dividend payments being made ie income.

As the entire amount I have borrowed is a cost related to an income producing asset, I believe all of it is tax deductible.

Correct? Second question... as I plan to dollar cost average in terms of purchasing shares, is there any harm in placing the funds into an offset/transaction account for the time being? Terry did say it is not claimable as it sits in an offset account but I wanted some clarity here
 
2 issues.

1. Borrowing to pay interest. Generally deductible if underlying interest deductible but ato can deny the deduction.

2. Mixing borrowed and non borrowed money. Interest won't be fully deductible.
 
Im not exactly following point 2 Terry.

The amount I am borrowing is $40k. The entire amount is being used as an expense to aid in income producing asset IE investment property & shares. I cannot see why it cannot be fully deductible.
 
Im not exactly following point 2 Terry.

The amount I am borrowing is $40k. The entire amount is being used as an expense to aid in income producing asset IE investment property & shares. I cannot see why it cannot be fully deductible.

He's talking about if funds (the $40K) are being withdrawn into your transactional account first before being spent on shares. If its there for a bit and theres other transactions going on, it may be hard to prove the nexus of funds for investment when claiming the interest as deductible.

Most share trading accounts that are part of online banking are linked to an investment account anyway; see if you can withdraw to that and buy the shares from that.
 
Australian margin loan interest rates are a ripoff when you consider the low LVRs and liquidity and hence lower risk than property. Rates should be significantly lower, certainly lower than property loans. Some international margin loan lenders offer much lower rates than Australian brokers.
 
Australian margin loan interest rates are a ripoff when you consider the low LVRs and liquidity and hence lower risk than property. Rates should be significantly lower, certainly lower than property loans. Some international margin loan lenders offer much lower rates than Australian brokers.

Have you heard of volatility?
 
Back
Top