Reward Credit Card vs LOC or combination both

[ZachAnSel]

Hi all,

I try to find "how your credit card can help u" or debt recycle. But found limit on my search.

Credit card have few plus point if you know what u doing. For example 55 days interest free, frequent flyer or rewards point.
Step to reach max gain is change ur direct debit to credit card. From there setup direct debit to ur transaction account. On my case is PPOR offset account..
Which what we currently set. This enable us to have offset stay longer and free airline tickets.

LOC in the other hand, also enable you to interest capitalisation ur IP interest payment. Again if u know what u doing, seek proper advice and ATO private rulling.

I prefer Credit card than LOC due to travel, and my poor tax knowledge. Since then I would like to have discussions if we would like to combine credit card with loc. For example =
Interest IP direct debit to credit card then credit card direct debit to LOC. I want to know if someone implemented this?
What tax/ATO said about this?
But not limited to which credit card product is the best?
Or if you have better idea, just share it.
Thanks..

 

[Terry_w]

With a credit card you would have 45 days or so interest free (plus points maybe). This would mean your cash could sit in your offset account longer and save you more money.

Whereas with a LOC once you withdraw money you are paying interest on it.

The credit card is a loan, so if you really wanted to use a LOC you would be better off using the card and then refinance this debt with the LOC on the last day before you start incurring interest.

 

[ZachAnSel]

With a credit card you would have 45 days or so interest free (plus points maybe). This would mean your cash could sit in your offset account longer and save you more money.

thanks Terry,
Yes we use this strategy. Our family have 55 days interest free and frequent flyer attach to it. This help us reduce our travel cost, never been happier. My wife also get new coffee machine and new juicer two months ago. At the end of the days its free and enable our money stay in offset longer

Whereas with a LOC once you withdraw money you are paying interest on it.

The credit card is a loan, so if you really wanted to use a LOC you would be better off using the card and then refinance this debt with the LOC on the last day before you start incurring interest.

This is new territory for me, we have a LOC (80% from PPOR) but never utilize max/capital interest strategy.

I want to explore more about this, read some ATO private ruling in regards to deduct-ability issue.

Anyone to share how to and the numbers please? thanks

 

[Terry_w]

This is new territory for me, we have a LOC (80% from PPOR) but never utilize max/capital interest strategy.

I want to explore more about this, read some ATO private ruling in regards to deduct-ability issue.

Anyone to share how to and the numbers please? thanks

If you want to capitalise interest then be careful. The deductions will generally be denied where the dominant purpose is to pay off your non deductible home loan sooner.

 

[ZachAnSel]

If you want to capitalise interest then be careful. The deductions will generally be denied where the dominant purpose is to pay off your non deductible home loan sooner.

Thanks Terry, can you elaborate/please take a look my example:

Let say I setup LOC - for 20% DP + 5% purchasing cost. I use this LOC for purchase IP. I still have $80k in my LOC..
Current LOC interest is keep growing (interest after interest)

For the rest 80% - setup I/O loan. Setup direct debit to my offset account, and I feel there is must be a better way.

How should I treat this/which part that you reckon I can tweak?

 

[Terry_w]

Thanks Terry, can you elaborate/please take a look my example:

Let say I setup LOC - for 20% DP + 5% purchasing cost. I use this LOC for purchase IP. I still have $80k in my LOC..
Current LOC interest is keep growing (interest after interest)

For the rest 80% - setup I/O loan. Setup direct debit to my offset account, and I feel there is must be a better way.

How should I treat this/which part that you reckon I can tweak?

ATO have said that capitalising interest is ok and if the underlying interest is deductible then the capitalised part is deductible.

But under the 1936 Tax Act under Part IVA the ATO also has the power to deny the deduction of this capitalised interest if it is a scheme with the dominant purpose of a tax advantage.

So the question becomes why are you not paying the interest on your LOC?

 

[ZachAnSel]

ATO have said that capitalising interest is ok and if the underlying interest is deductible then the capitalised part is deductible.

But under the 1936 Tax Act under Part IVA the ATO also has the power to deny the deduction of this capitalised interest if it is a scheme with the dominant purpose of a tax advantage.

So the question becomes why are you not paying the interest on your LOC?

Sorry I didn't clear, the interest on LOC is paid using offset money. Just not direct debit due to product limitation.

Back to the capitalising interest. Scenario : IP rent transfer to PPOR offset, but all the IP cost paid by LOC. Is it debt recycle common scenario? Or you sense danger?

Can I add another step (credit card) into it like the one before?

 

[Terry_w]

Back to the capitalising interest. Scenario : IP rent transfer to PPOR offset, but all the IP cost paid by LOC. Is it debt recycle common scenario? Or you sense danger?

This is paying interest with borrowings = Capitalising interest.

My comments above would apply to this bit.

 

[ZachAnSel]

This is paying interest with borrowings = Capitalising interest.

My comments above would apply to this bit.

Thanks Terry, apologise my tax knowledge. Need to invest more time to learn for sure.

So I can tweak by add another LOC step into it.
1. Rent money go to PPOR offset account
2. All IP cost consume by LOC
3. LOC interest pay by Credit Card
4. Credit card payment full amount

This will enable offset money stay longerthan before, and travel/miles rewards point for free.

Back in Indonesia we use to have one credit card that pay with another credit card. No need to worry about credit score, serve as discount for eating out, airport lounge, buy one get one free cinema ticket, cashback. Good old days..

 

[Terry_w]

Thanks Terry, apologise my tax knowledge. Need to invest more time to learn for sure.

So I can tweak by add another LOC step into it.
1. Rent money go to PPOR offset account
2. All IP cost consume by LOC
3. LOC interest pay by Credit Card
4. Credit card payment full amount

This will enable offset money stay longerthan before, and travel/miles rewards point for free.

Back in Indonesia we use to have one credit card that pay with another credit card. No need to worry about credit score, serve as discount for eating out, airport lounge, buy one get one free cinema ticket, cashback. Good old days..

You can't pay LOC interest with a CC - actually you can, but it would be a cash advance and no interest free period.