Repaying a Cash Deposit from a LOC

[Skoorb]

Hi All,

Long time forum lurker, first time poster!

From what I have read so far this cannot be done, but any additional info would be useful.

If I pay a cash deposit for an IP, can I then use a LOC to pay myself back once it is set up?

Eg. $50k cash deposit paid

LOC $110k (inc $50k to be returned to me)
IP Loan $400k

Once setup draw down $50k from the LOC to refund the cash?

Ideally the LOC would've been set up in time to pay the deposit but unfortunately this has not been the case.

 

[tobe]

get some specific advice from your accountant.

Yes, you can have the loc pay you back, the question is more whether the loc will be tax deductible. That's a question for your accountant.

One method around this is to pay an additional 10% to the agent from the loc and have them reimburse the original prior to settlement.

By the way, loc are usually more expensive and have less generous terms than a simple term loan interest only with offset.

 

[Terry_w]

s8-1

If you reimburse yourself you are borrowing to pay for something already paid for so the interest doesn't relate to the expense the money was used for initially.

A way around it may be to borrow from someone and then refinance this loan with the loan from the LOC.

 

[neK]

s8-1

If you reimburse yourself you are borrowing to pay for something already paid for so the interest doesn't relate to the expense the money was used for initially.

A way around it may be to borrow from someone and then refinance this loan with the loan from the LOC.

Can the someone be a trust / company where the director is yourself ?

 

[Marty McDonald]

Yes I would think so

 

[Skoorb]

s8-1

If you reimburse yourself you are borrowing to pay for something already paid for so the interest doesn't relate to the expense the money was used for initially.

A way around it may be to borrow from someone and then refinance this loan with the loan from the LOC.

Thanks for the replies so far.

So, my understanding of this is that I could repay myself, however the interest on the $50k (i.e $50k out of $110k LOC) would not be tax deductable?

Perhaps I'll try Tobe's suggestion of requesting a refund of the original $50k deposit.

 

[Terry_w]

Thanks for the replies so far.

So, my understanding of this is that I could repay myself, however the interest on the $50k (i.e $50k out of $110k LOC) would not be tax deductable?

Perhaps I'll try Tobe's suggestion of requesting a refund of the original $50k deposit.

Seek legal advice before doing that.

 

[Terry_w]

Can the someone be a trust / company where the director is yourself ?

A company is a separate legal person so should be ok from a legal point of view. But if you have contributed money to the trust or company and then borrow it back the ATO may have a few issues with this.

 

[Richard Feynman]

I've done something similar--no issues.

Had a refi underway but put an unconditional offer with 10% cash deposit through before the refi was done.

Reimbursed cash by vendor on settlement, and re-paid the deposit with borrowed funds.

Talk to your solicitor. They can write something up.

 

[mugen]

A way around it may be to borrow from someone and then refinance this loan with the loan from the LOC.

Do you know if this has been done before from your experience?

 

[Terry_w]

Do you know if this has been done before from your experience?

Yes it has. Best to seek tax and legal advice otherwise interest may not be deductible.

 

[Terry_w]

Cash in a real estate agent's trust account belongs to the purchaser until settlement (at least in NSW). So Richard's technique should work well. You simply pay more at settlement from borrowed money and any cash in the trust account is reimbursed to you.

Seek specific legal advice.