Reimbursing deposits on an IP

[Davimin]

Hi all

I?ve been reading on SS how you shouldn?t pay for a deposit for an IP from personal funds then reimburse yourself out of loan funds as the Tax Office would treat this as personal expense and may disallow the interest on the entire loan.

But what if my wife pays for the deposit then I reimburse my wife for the deposit. The loan and IP is in my name. I can get my wife to sign something stating she lent me the deposit. Can I then use loan funds to pay back the deposit and not taint or put doubt and get tax deductibility for the loan interest?

The deposit on the IP is only $1k so its not going to break the bank, but thought I?d ask the question as my broker has been slack organising things.

Davimin

 

[Terry_w]

Yes, if it is her money and there was a written loan agreement on commercial terms you could borrow from her and then refinance this loan down the track. Refinancing doesn't change the deductibility of interest.

 

[Davimin]

Thanks Terry

 

[Paul@PFI]

A payment made by wife isn't necessarily "financed" so don't leap to a conclusion that its a refinance. Her money v's your money ?? Source ?? What was the nature of the original amount ?? What terms suggest it was a loan v's a gift. Is she your bank ?Now how do you determine that ? What was the original term ??

Wouldn't it have been easier to pay $1k on ANY credit card and then the argument about refinance is very apparent. You later draw the $1k on the LOC and pay the card.

 

[Marty McDonald]

or use a deposit bond.

 

[Jamie M]

or use a deposit bond.

Bingo. That's what I'd be doing - takes away all the complexity. Just make sure that the vendor will accept.

Cheers

Jamie

 

[perthguy]

Would it be possible to pay the deposit and then have it returned at settlement rather than transferred to the vendor? That way the loan could be for the full amount instead of the amount -deposit.

 

[Paul@PFI]

You could but could it taint the loan if its not a genuine refinance. Otherwise would not everyone just reimburse themselves for the deposit ??

Making a payment to yourself is not a refinance of a deductible debt.

If the aim is to max the loan at 80% for example you could structure the settlement and loan proceeds that way. Preplanning a better way that waiting for the settlement sheet and asking for it to be adjusted. The lawyers may charge a bit for the hassles.

 

[perthguy]

You could but could it taint the loan if its not a genuine refinance. Otherwise would not everyone just reimburse themselves for the deposit ??

Making a payment to yourself is not a refinance of a deductible debt.

If the aim is to max the loan at 80% for example you could structure the settlement and loan proceeds that way. Preplanning a better way that waiting for the settlement sheet and asking for it to be adjusted. The lawyers may charge a bit for the hassles.

Sorry, my post was not very clear. 1. Deposit goes to the REA. 2. you arrange finance for the max amount you can borrow. 3. Deposit is returned to you from the REA account.

Would it work in that case? (assuming the vendor and REA agreed of course)

 

[Paul@PFI]

No. Its not a REFINANCE. Its a reimbursement at best. You are trying to switch a non interest bearing item into an interest bearing one.

That can be the issue with a spouse too. Just because they paid it doesn't mean there was a loan term, and it has been refinanced.

 

[perthguy]

No. Its not a REFINANCE. Its a reimbursement at best. You are trying to switch a non interest bearing item into an interest bearing one.

That can be the issue with a spouse too. Just because they paid it doesn't mean there was a loan term, and it has been refinanced.

Understood. Cheers.