Steve Navra's Cash Bond?

[agent007]

Please, correct me if I'm wrong:

Steve Navra's Cash Bond can be used to create a new souce of income. Then, the interest from this loan is TAX deductible because equity from IP was used to invest in an income producing instrument (investment)? and this is regardless one uses this income for life style or investment? Are my assumptions right?

Thanks,

James.

 

[geoffw]

I thought that it was like any loan. The interest is tax deductible if the purpose of the loan is to produce income. Cashbonds, if used to overcome a servicability problem, are contributing towards income, so the interest would be claimable. That's my understanding anyway.

 

[DaleGG]

Hi

Yes, the interest on the loan to create a cashbond is tax deductible. Steve , through his offsider, Katrina, was good enough to provide me with a copy of a personal ruling that was obtained for one of their clients and the tax office response was so straightforward I suspect that they were surprised to even be asked!

Dale

 

[duncan_m]

Originally posted by DaleGG
Hi

Yes, the interest on the loan to create a cashbond is tax deductible.

Dale

Hi Dale,

Trust Mrs Dale and the Dalettes are all well?

I'm stunned! How can this be? Is this as simple as it appears to be?

How long do personal rulings take to process? How long do they remain binding on the tax office?

Regards,

Duncan.

 

[agent007]

Hi Dale,

So, based on your answer to this post and going back a couple of weeks ago when I asked about useing equity (LOC) from an IP to retire debt on ones PPOR then, One can use the Cash Bond (sourced from IP's LOC) to pay for PPOR and at the same time have the interest for this loan TAX deductible. Am I right?.

Thanks and regards,
James.

 

[aidan_opan]

To Steve Navra

Hi

NO, at this stage, none of my clients have actually been through the process with Steve - although, a few are starting to head down that road . . .

Having said this, even if they were to arrange a cashbnd, I would not bother with a private ruling.

Dale


"Do you issue that tax ruling to all your clients that use the cash bond through you?"

 

[bundy1964]

Originally posted by agent007
Hi Dale,

So, based on your answer to this post and going back a couple of weeks ago when I asked about useing equity (LOC) from an IP to retire debt on ones PPOR then, One can use the Cash Bond (sourced from IP's LOC) to pay for PPOR and at the same time have the interest for this loan TAX deductible. Am I right?.

Thanks and regards,
James.

Hi James

Since it is income you can spend it any way you like

bundy

 

[DaleGG]

Hiya Duncan!


Yes, it seems to be very simple indeed. You have borrowed money for the purpose of creating an income stream (twofold really - one being the annuity, and, the other being the rental income that the annuity is used to create in itself) and as such the tax office took almost a ho-hum approach in their private ruling.

Have fun

Dale

Originally posted by duncan_m
Hi Dale,

Trust Mrs Dale and the Dalettes are all well?

I'm stunned! How can this be? Is this as simple as it appears to be?

How long do personal rulings take to process? How long do they remain binding on the tax office?

Regards,

Duncan.

 

[sbe]

WRONG!

To be deductable, the income "purchased" must be spent on an income producing asset. Otherwise it's considered "private" in nature and not claimable. Nice try, but they ain't that dumb......

Obviously they dont mind you claiming when you purchase something that gives income - something they can then tax!!!

 

[duncan_m]

Originally posted by sbe
WRONG!

To be deductable, the income "purchased" must be spent on an income producing asset. Otherwise it's considered "private" in nature and not claimable. Nice try, but they ain't that dumb......

Obviously they dont mind you claiming when you purchase something that gives income - something they can then tax!!!

Isnt the CashBond the Asset purchased? I guess the income would then be taxable if that were the case?

Duncan.

 

[aidan_opan]

Dear Sbe,

Steve will correct me if I am wrong. But i think the cashbond strategy that Steve uses is tax deductible because it is used to satisfy servicability with the lenders .

 

[DaleGG]

Hi

The cashbond is a strategy whereby a loan is taken to buy an annuity. An annuity is a guaranteed income stream.

Moreover, and as I said before, the annuity is only one of the assets acquired. The investment property is the 2nd asset acquired and as a direct result of the cashbond or annuity increasing the person's income to satisy the lender.

The magic is in its simplicity.

Dale

 

[duncan_m]

Originally posted by DaleGG
Hi

The cashbond is a strategy whereby a loan is taken to buy an annuity. An annuity is a guaranteed income stream.

Dale

Dale,

Many thanks for persisting.. If the Annuity is an INCOME stream are ALL the payments from the Annuity therefore considered Income and thus Taxable?

Cheers, Duncan.

 

[aidan_opan]

all the income paid back to you is tax free

 

[duncan_m]

Originally posted by aidan_opan
all the income paid back to you is tax free

Then in that case its only a matter of time before the Tax Office wises up to the fact.

This is virtually identical to the split loan fiasco we're seeing at the moment.. people directing rental income to repay PPOR debt and allowing deductible debt to increase.

I fail to see how you can have you cake and eat it too.. sure private rulings may have been issued, but the bandwagon is probably getting a bit overloaded now and dont forget that Private Rulings can't be used as a basis to support your own case..

Either the Income stream income becomes taxable income or the interest on the loan will eventually become disallowed as a deduction..

I'm not saying the cashbond structure isnt kinda neat, but in my humble opinion dont get carried away for too long with the new interest on each new drawdown of LOC's remaining as deductible debt..

Duncan.

 

[Rolf Latham]

Hi All

An immediate annuity is composed of two parts - this is my take on it anyway

1. A investment return component, say 2 to 4 %. This is INCOME and is therefore taxable.

2. A capital return ration. If for example you have a 5 year annuity of 100 000, you get back back 20 000 a year. This is your capital being RETURNED and is not income and is therefore NOT taxable.

The confusion here appears to be the definition of income. Some lenders will take both parts as INCOME for service purposes.

The tax man is only interested in the piddly investment return, NOT your return of capital

Ta

Rolf

 

[duncan_m]

Originally posted by Rolf Latham
Hi All

An immediate annuity is composed of two parts - this is my take on it anyway

1. A investment return component, say 2 to 4 %. This is INCOME and is therefore taxable.

2. A capital return ration. If for example you have a 5 year annuity of 100 000, you get back back 20 000 a year. This is your capital being RETURNED and is not income and is therefore NOT taxable.

The confusion here appears to be the definition of income. Some lenders will take both parts as INCOME for service purposes.

The tax man is only interested in the piddly investment return, NOT your return of capital

Ta

Rolf

Rolf, I agree.

Therefore the drawdown on a Loan to purchase a Cashbond is on very tenuous ground if the resulting interest is claimed as a deduction.

Duncan

 

[sbe]

The income from the cash bond is not taxable - you bought it yourself.

Where the tax implications come in is.....

If you want to claim a deduction for the interest on the loan to purchase the cash bond, then income must be spent on income producing items.

To quote
"This is virtually identical to the split loan fiasco we're seeing at the moment.. people directing rental income to repay PPOR debt and allowing deductible debt to increase."

Thats right, and if you want to spend it on yourself, fine. But dont try and claim the deduction on the finance to buy the cash bond, or that's where you'll get caught out. Of course, if it's not deductable, you're just building up bad debt.......

Of course, if you had cash lying around and bought the cash bond, there's no tax implications at all, as you can't claim against what else you could have done with the original cash (And if you're asking why you would do this - money in the bank but no job.). Then again, what are you doing with cash lying around? Give it to me !!

aidan_opan - Its deductable as Steve uses it to service the loan - hence fulfilling the income producing asset requirement.

 

[aidan_opan]

"This is virtually identical to the split loan fiasco we're seeing at the moment.. people directing rental income to repay PPOR debt and allowing deductible debt to increase."

I can see how Steve's system works like a split loan if you are using the same lender. But how would get away with it if your lender for your PPOR is different to that for your IP. I can't see how you can get away with paying one lender and not the other.

 

[Rolf Latham]

Hi Duncan


To me at least, obviously the interest IS deductable where it can be shown that the annuity is required for you to purchase the next income producing property.

If there is no clear link between the annuity and a NEW investment that generates income that may at some time be taxable, then that is a different case altogether.

Ta

rolf