Refinanced LMI as Tax deduction

[Aaron_C]

As us accountants have to fix up the mess from incorrect advice, we get a bit touchy about non-helpful advice.

Oh, spare a thought for the accountant with the bleeding heart

I could say the same thing about my profession where I have to 'clean up messes' left by bankers or other incompetent brokers. I don't claim to know everything either, but you make it sound like accountants are the arbiters of good advice and I just don't accept that.

Yes, people here should talk to a professional about [insert tax/finance/accounting/legal question]. Simple fact is people can't rely on this forum 100% for proper advice, when you can't 100% rely on a professional that you pay to do so since even the professionals get it wrong. Is bad / wrong legal/accounting advice an excuse in the government's eyes? Hell no. Ultimately that little disclaimer at the bottom of every tax return that my accountant does says that I am personally responsible for any errors in it. So please stop the ridiculous assertion that only accountants know best.

 

[Terry_w]

Oh, spare a thought for the accountant with the bleeding heart

I could say the same thing about my profession where I have to 'clean up messes' left by bankers or other incompetent brokers. I don't claim to know everything either, but you make it sound like accountants are the arbiters of good advice and I just don't accept that.

Yes, people here should talk to a professional about [insert tax/finance/accounting/legal question]. Simple fact is people can't rely on this forum 100% for proper advice, when you can't 100% rely on a professional that you pay to do so since even the professionals get it wrong. Is bad / wrong legal/accounting advice an excuse in the government's eyes? Hell no. Ultimately that little disclaimer at the bottom of every tax return that my accountant does says that I am personally responsible for any errors in it. So please stop the ridiculous assertion that only accountants know best.

Don't think Dan was saying that. But, there is a possibility that accountants know a thing or two about tax.

 

[Terry_w]

Happens all the time - plenty of accountants have broker accreditation for the odd-loan that they write. It's easy to say you should 'distinguish' between a tax-agent and broker capacity but in reality the line is much more blurred than that (although I am sure you know that already).

Yes, some accountants run mortgage broking in the same business. In this case they are the broker and the tax person. But they probably have insurance that covers both. If the tax agent is giving loan advice then they could give tax advice at the same time.

With lawyers though it is different. A lawyer can run another business and a legal practice but must keep a clear distinction between the two - separate files, companies and email addresses. Got to watch out for conflicts of interest too - such as signing off on trust deeds as a lawyer when you as the broker do the loan etc.

There is a recent case I read where a barrister sued an accountant who was also a planner about some plantation investments that went wrong. His system was a mess and it was unclear which company he was acting for in the matter because he had used letter heads from both firms at different stages.

 

[Rob G.]

Obviously people need to get tax advice from an accountant. Whilst brokers generally aren't qualified to give tax advice, it's also fair to say that we see enough scenarios to at least give some basic advice to be confirmed with the individuals accountant. It's probably naive of me to assume that people on this forum are intelligent to apply that principal to the information they receive here regardless of the qualifications of the poster.

Actually, these links are specifically aimed at Aaron's comments about disclaimers:

http://www.propertyinvesting.com/comment/272849#comment-272849

http://www.propertyinvesting.com/comment/272846#comment-272846

http://www.propertyinvesting.com/comment/273067#comment-273067

Cheers,

Rob

 

[Rob G.]

Ultimately that little disclaimer at the bottom of every tax return that my accountant does says that I am personally responsible for any errors in it. So please stop the ridiculous assertion that only accountants know best.

Reliance on advice from a registered tax agent gives the following legal remedies when you have made sufficient disclosure to the agent to form an opinion:

Contract Law damages

Tort of negligence

Safe Harbour protection given by the ATO under legislation (doesn't matter about disclaimers, doesn't depend on discretionary ATO practice and vindictive ATO officers).

Professional associations can also control their actions.

The Tax Agent Review Board has legislated oversight and can impose restrictions and punishments upon registered tax agents.

Promoter penalty regime demands a higher standard of tax agents.

You can also only claim a tax deduction for the cost of advice given by a registered tax agent or tax lawyer.

In most cases, the last point is probably not so important because it is usually given free as an inducement by a broker to use their service. Additionally, the advice would most certainly not be in writing.

Cheers,

Rob

 

[dan c]

Dan do you have any comments on my 'opinion' above?

I'm assuming the original loan was taken out at 80% LVR, then an equity access for another 10% (which would incur LMI on the full borrowed amout). Given the equity access is what triggered LMI and the purpose was for the purchase of another property, wouldn't the LMI be deductable in a manner consistant with the purpose of the new property purchase even though it was charged over the entire loan?

The deductibility of the LMI would be determined by the purpose of the new loan (the equity release). If the new loan, which triggered the LMI, was to purchase a private property, then I'd argue the LMI is a private expense also.

I feel your pain on unqualified advice. It's painful when a client says their accountant/solicitor/parent/hairdresser told them it was okay, therefore the bank should lend them the money.

I hear you. It doesn't just happen to accountants, I'm sure.

 

[dan c]

Oh, spare a thought for the accountant with the bleeding heart

I could say the same thing about my profession where I have to 'clean up messes' left by bankers or other incompetent brokers. I don't claim to know everything either, but you make it sound like accountants are the arbiters of good advice and I just don't accept that.

Time for some reading comprehension for you, Aaron.

I didn't say accountants are the only ones who can give good advice. I said accountants are the only ones people should listen to for TAX advice. Big difference.

Seeing as though you want to give tax advice so badly, why don't you go and do the five odd years of study to be a CA or CPA?

Until then, how about you stick to what you know?

 

[Aaron_C]

Reliance on advice from a registered tax agent gives the following legal remedies when you have made sufficient disclosure to the agent to form an opinion

When a legal remedy is required, it is too late. The damage is already done. Plus, realistically speaking it is not easy to ping any professional for negligence, particularly in a contentious area where the differences in professional opinion are legitimate such that giving the 'wrong' advice is not negligent at all. Sure, we can all agree on the simple things like claiming a tax deduction for paying interest-expenses on an investment property but what happens when it gets more complicated? Truth is no one knows the answer with 100% certainty and I would not expect any accountant to give that guarantee because it simply doesn't exist.

 

[Aaron_C]

Time for some reading comprehension for you, Aaron.

I didn't say accountants are the only ones who can give good advice. I said accountants are the only ones people should listen to for TAX advice. Big difference.

My mistake, since even my own accountant referred me to a tax lawyer for tax matters with the ATO. Perhaps you'd like to upgrade your credentials as well since the tax lawyers are the arbiters of what the tax law should or ought to be? I could have been just like you dan_c and ended up a tax accountant but I turned that job offer down a long time ago. If you are so offended by my contributions (re tax questions or otherwise) perhaps filter out my comments in future so you don't see them and spare yourself the indignation.

 

[dan c]

Is bad / wrong legal/accounting advice an excuse in the government's eyes? Hell no. Ultimately that little disclaimer at the bottom of every tax return that my accountant does says that I am personally responsible for any errors in it. So please stop the ridiculous assertion that only accountants know best.

That disclaimer is more to make sure you include all your income and don't fudge your expenses, not the reliance on tax advice.

If you do rely on advice given by a tax agent and it's wrong, there is recourse available to you.

There's no recourse if you rely on advice from your mortgage broker / real estate agent / any other sales person working for commission.

It's also why tax agents carry large amounts of PI insurance. Just in case.

 

[dan c]

If you are so offended by my contributions (re tax questions or otherwise) perhaps filter out my comments in future so you don't see them and spare yourself the indignation.

If I couldn't see tham, I wouldn't be able to correct them.

 

[sam.baba]

Valuation Result of my IP and refinancing advise

Hi All,

I yesterday met with my mortgage broker, he advised that he now holds a Diploma in Financial Management and he is now a senior financial broker.


In relation to my initial post which is to use my Investment property’s equity to buy another house he gave me the following suggestion, I just want to find out whether it’s worth the effort.

Based on the valuation the Mortgage broker did using an external valuation firm our IP’s current value was $396,900 this turns out to have LVR of 82.13% based on our loan balance of $326932. Therefore my financial broker suggested me to refinance my Home Loan with ANZ and borrow 90% of my current property value, which amounts to $357210, and take the extra cash of $30278 and keep it in an offset account to reduce our Interest payment and in 4 months time after showing a good banking record and saving up a bit of additional fund, we could possibly think of buying the next property by getting another mortgage loan with ANZ.

He also mentioned that the LMI incurred on this refinance can be claimed as borrowing expense, however based on the previous replies to my initial posting I believe that the LMI that is only related to the IP loan portion can be only be claimed as a Borrowing expense deduction.

When I did the comparison with my existing bank NAB with ANZ I don’t find much of a difference with the Interest rate and their package benefits.
NAB’s current choice package interest rate after the discount is 5.88% and their annual package fee is $395.
Where as ANZ’s break free package interest rate after discount is 5.95% and their package fee is $375.

Therefore I am wondering whether it is worth effort to move to ANZ, or is it better for me to talk to NAB and ask them what they can offer to keep me as a customer.

When I did my maths I found out that the only advantage that I would have by refinancing with ANZ is to claim the remaining borrowing cost of the existing mortgage of NAB in the 2012/2013 tax return, which would increase my tax return.

I would appreciate if anyone can provide me with some advice.

Hope my query makes sense.

Thanks.

 

[tobe]

I havent yet seen a broker who isnt a senior finance consultant or similar, and all brokers need to hold the diploma if they want to stay in the industry after the 30th January 2013, so thats a bit of a moot point.

Refinancing to ANZ and sitting for 6 months means you will then qualifiy for a 95% investment loan with ANZ (anz restrict 95% to exisitng clients of 6 months or more).

So its a fairly good option if your intention is to buy an investment property with a high LVR loan in 6 months time. Is that your intention?

as far as the LMI deductability goes, my understanding is its claimable (both the interest cost ongoing and the borrowing expense) if the purpose was to generate additional taxable income. this scenario wont qualify for that for 6 months time, when you actually buy an investment property and start receiving rent.

Is this the best option? there are other lenders who can do 95% investment purchase without the 6 month wait, but there may be something else to do with your particular details that means ANZ is the best fit for you.

 

[Peter_Tersteeg]

Immediately I'll say that your finance broker is acting more in their interests than yours.

I have trouble finding a reason why your broker would have recommended refinancing from NAB to ANZ when there is an LMI premium involved, given that if you do a simple topup with NAB the LMI premium would be about 10% of what the ANZ will charge. The real reason for the brokers recommendation is because ANZ will pay a full commission for a refinance, whilst the NAB would pay only a very small commission on the increase (not the full loan).

It's the difference between the broker making thousands of dollars as opposed to a few hundred dollars. It's also going to cost you thousands of dollars as opposed to a few hundred dollars.

Between the intrest rates and the fees, ANZ and NAB are comparible but NAB has a slight edge.

Forget the tax benefits, it means you'll get some of your costs back, but it'll still cost money.

As for the "Diploma in Financial Management" and "Senior Finance Broker", what a load of rubbish. Almost every broker in the country holds that diploma and there is no official recognition anywhere (expect perhaps by his employer) of "Senior Finance Broker", or "Junior", or even "Sh*tkicker".

Bottom line, I think your broker is taking you for a ride and putting their interests above yours. I know I'm sounding nasty, but it really annoys me that some brokers do this and give the rest of us a bad name.

Talk to the NAB, I'm willing to bet they'll help you with a better deal.

 

[Brady]

Hi All,

I yesterday met with my mortgage broker, he advised that he now holds a Diploma in Financial Management and he is now a senior financial broker.


In relation to my initial post which is to use my Investment property’s equity to buy another house he gave me the following suggestion, I just want to find out whether it’s worth the effort.

Based on the valuation the Mortgage broker did using an external valuation firm our IP’s current value was $396,900 this turns out to have LVR of 82.13% based on our loan balance of $326932. Therefore my financial broker suggested me to refinance my Home Loan with ANZ and borrow 90% of my current property value, which amounts to $357210, and take the extra cash of $30278 and keep it in an offset account to reduce our Interest payment and in 4 months time after showing a good banking record and saving up a bit of additional fund, we could possibly think of buying the next property by getting another mortgage loan with ANZ.

He also mentioned that the LMI incurred on this refinance can be claimed as borrowing expense, however based on the previous replies to my initial posting I believe that the LMI that is only related to the IP loan portion can be only be claimed as a Borrowing expense deduction.

When I did the comparison with my existing bank NAB with ANZ I don’t find much of a difference with the Interest rate and their package benefits.
NAB’s current choice package interest rate after the discount is 5.88% and their annual package fee is $395.
Where as ANZ’s break free package interest rate after discount is 5.95% and their package fee is $375.

Therefore I am wondering whether it is worth effort to move to ANZ, or is it better for me to talk to NAB and ask them what they can offer to keep me as a customer.

When I did my maths I found out that the only advantage that I would have by refinancing with ANZ is to claim the remaining borrowing cost of the existing mortgage of NAB in the 2012/2013 tax return, which would increase my tax return.

I would appreciate if anyone can provide me with some advice.

Hope my query makes sense.

Thanks.

Not going to bother chiming in about the tax side of things.

But new CBA HL $250k - $350k @ =90%LVR will be 5.8% (6.6% - 0.8%) on wealth package which is $375p.a and you currently get $700 to refinance.

Not sure why your broker is suggesting you move to ANZ on higher rate and repay LMI?

 

[sam.baba]

Hi Tobe,

Thank you for your instant response. In relation to the qualification he holds, he does hold a Diploma in Financial Management.

Mine and my wife's intention is to buy a property for us to live in, because we are currently living in a rental house and rented out our PPL since September 2011 to present. We had to do this becuase I wanted to live closer to my current work place.

Therefore will the LMI incurred again when refinancing with ANZ claimable as borrowing cost or only a portion of it is claimable because there is an excess fund of $30278, which is extra to the mortgage.

Thanks again.

 

[tobe]

Hi Tobe,

Thank you for your instant response. In relation to the qualification he holds, he does hold a Diploma in Financial Management.

Mine and my wife's intention is to buy a property for us to live in, because we are currently living in a rental house and rented out our PPL since September 2011 to present. We had to do this becuase I wanted to live closer to my current work place.

Therefore will the LMI incurred again when refinancing with ANZ claimable as borrowing cost or only a portion of it is claimable because there is an excess fund of $30278, which is extra to the mortgage.

Thanks again.

I AM NOT AN ACCOUNTANT, however my opinion is no, the LMI will not be claimable until you actually produce assessable income from the new loan. The old loan portion would be until then.

What is the purpose of the loan/LMI? If it isnt to produce assessable income, it aint claimable.

Tobe, senior finance consultant, DIP FS, racontour and purveyour of fine meats.

 

[sam.baba]

Hi Peter,

Thanks for the great advise and I think you are 100 % spot on.

I almost figured out that he is forcing me to go ahead to go with ANZ for his benefit, because he mentioned that the LMI I incur with ANZ can be claimed over 2 years of tax, which indicated that he does not have enough knowledge on tax side of things.

I will definitely talk to NAB and let you guys know the outcome.

Thanks again so much.

 

[sam.baba]

Hi Brady,

Thanks for the info about CBA.

 

[Brady]

Hi Brady,

Thanks for the info about CBA.

No problem surprise your broker didn't suggest this...

Well actually no im not.


Personally I would go back to NAB telling them that CBA will offer you 5.8% and will pay $700 to switch and I would suggest they would match the rate.