Hi all, new member here. I wish I had found this forum 6 months ago and done a bit of research then. A bit embarrassing, but here is my situation. I am one of the many who has been talked into a property investment scheme by one of the familiar (to you guys I am sure) property investment / retirement planning “consultants”. So we have a brand new mortgage, in fact 3 brand new mortgages and 2 new lines of credit, as we have purchased a block-and-build scheme in Queensland and refinanced all of our mortgages. Needless to say we have copped plenty in fees and mortgage insurance, however I am reasonably happy that our finances are better organised and tax effective, and as long as the property is tenanted I think it could be ok as an investment, and equity in our PPOR has been separated from our 2 investment properties (one pre-existing) as far as security is concerned.
Anyway, here is the situation with our accounts
A account – line of credit secured on PPOR with facility to borrow around $140k to fund renovation project on PPOR. Remaining debt on PPOR is around $30k. (Total LOC to $170k)
B account – line of credit to $100k to fund refinancing expenses, deposits and progress payments for new build IP.
C account - $50k share investment loan, this was a pre-existing loan with previous bank, just refinanced.
D account - $300k property investment loan, this was a pre-existing loan with previous bank, just refinanced.
E account – balance of new build loan, with allowance for costs and interest servicing until tenanted. $278k. This account is not yet in place.
As per usual, the strategy is to use a CC to fund all private expenses and direct all income into the A account to minimise non-ded debt.
My understanding is that A account is non-ded, B, C, D, E accounts, interest is ded.
OK, so here is the first part of my question. Refinancing expenses were charged to the A account, including search fee, bank fees, mortgage insurance for A,C,D accounts. I believe they should have been directed to the B account (capitalised), except for the mortgage insurance on the A account. As such I have made a transfer from the B account to the A account to correct this. Is this all OK? I believe too that old-bank break fees are deductible, but refinancing fees need to be amortised over 5 years (from research on here.)
Next, they are telling me to direct all of my interest from the loan accounts to the B account, however from my research on here I believe that that is capitalising interest and a no-no per the ATO. However, when I think about it, a LOC which charges itself interest is doing exactly the same thing. I am confused as to if this is how an LOC works and where I should be directing interest, as interest is close to due and I do not want to default.
Any other comments on the structure most welcomed.
Apologies for the long and complex post.
Regards
Ian
Anyway, here is the situation with our accounts
A account – line of credit secured on PPOR with facility to borrow around $140k to fund renovation project on PPOR. Remaining debt on PPOR is around $30k. (Total LOC to $170k)
B account – line of credit to $100k to fund refinancing expenses, deposits and progress payments for new build IP.
C account - $50k share investment loan, this was a pre-existing loan with previous bank, just refinanced.
D account - $300k property investment loan, this was a pre-existing loan with previous bank, just refinanced.
E account – balance of new build loan, with allowance for costs and interest servicing until tenanted. $278k. This account is not yet in place.
As per usual, the strategy is to use a CC to fund all private expenses and direct all income into the A account to minimise non-ded debt.
My understanding is that A account is non-ded, B, C, D, E accounts, interest is ded.
OK, so here is the first part of my question. Refinancing expenses were charged to the A account, including search fee, bank fees, mortgage insurance for A,C,D accounts. I believe they should have been directed to the B account (capitalised), except for the mortgage insurance on the A account. As such I have made a transfer from the B account to the A account to correct this. Is this all OK? I believe too that old-bank break fees are deductible, but refinancing fees need to be amortised over 5 years (from research on here.)
Next, they are telling me to direct all of my interest from the loan accounts to the B account, however from my research on here I believe that that is capitalising interest and a no-no per the ATO. However, when I think about it, a LOC which charges itself interest is doing exactly the same thing. I am confused as to if this is how an LOC works and where I should be directing interest, as interest is close to due and I do not want to default.
Any other comments on the structure most welcomed.
Apologies for the long and complex post.
Regards
Ian