This whole Split LOC thing...

[Herbus]

Hi Gang, I'm hoping to understand the use of split accounts better...

I understand that splitting personal ins/outs from those for investing is virtually a must-do for tax tracking purposes... what I'd like to get more familiar with is the general use of these accounts when certain scenarios present:

a) The LOC on my PPOR is split into 2 accounts, personal and investing. If I haven't drawn down all funds from each then if I need more money for investing, I just get the bank to lower the personal LOC and up the investing one,.. is this correct? Is this acceptable at tax time? Do the banks generally charge for this?

b) This also works in reverse..? ie: I need a reno on the PPOR, which I'm figuring will need to come from the personal account - can the investing LOC be lowered and the personal raised with no worries for tax, etc..?

c) I have an IP with it's own loan account setup - though I don't see why this would need a split account as no personal expenses should come out of it. However, is it easy/allowed to draw down from the IP LOC and move it to the PPOR investing LOC (from which it could optionally be moved to the personal account)?
As more IP's are accumulated, this method of pooling equity into a central account instead of having it all over the place seems to make good sense to me and I've heard this strategy at MCorp seminars so imagine others are doing it...

Would appreciate clarification on all this. Many thanks!
Drew

 

[Psyk]

a) The LOC on my PPOR is split into 2 accounts, personal and investing. If I haven't drawn down all funds from each then if I need more money for investing, I just get the bank to lower the personal LOC and up the investing one,.. is this correct? Is this acceptable at tax time? Do the banks generally charge for this?

Hi Drew, could you explain how this is setup exactly? I'm contemplating doing something similar with our accounts. How does it look exactly on say internet banking?

For example, lets say you have a split variable and fixed portion of your PPOR home loan as follows:
PPOR Loan Fixed: $100K
PPOR Loan Variable: $100K

If you're approved for an LOC of $100K, do you just split the available LOC that the bank offers as opposed to a single LOC account of $100K?
LOC1: $50K
LOC2: $50K

As a result the netbanking would look something like:
PPOR Loan Fixed: $100K
PPOR Loan Variable: $100K
LOC1: $50K
LOC2: $50K

 

[Herbus]

G'day Psyk, my post was more theoretical so I could try and understand things better, but as nobody has answered I'm hoping this post serves as a bump and someone might notice 'n' help you & me out...

That said, I do understand a little more of it now that I've spoken to my broker and accountant some.

So, now I don't have to theorise so much... my situation, signed and applied for late last week is:

PPOR
Current loan of $331k
Valued at $450k
Borrowing 95% ($427.5k) w/ LMI capitalised

Now I'm getting a split loan - $58k will be in an LOC account for investing purposes only. The remainder will not be an LOC, will have an offset account attached, and will be used to pay out the current mortgage + consolidate some bad debt... We won't draw on the LOC for a few months, so won't pay interest on it for a bit...

So, transferring money between the investing and personal accounts can be done, of course, but I'm told it's a nightmare to calculate at tax time, especially if it's done regularly... I figure if we *need* to move money from one to the other then we do it in one go rather than a dribble here and a dribble there...

I feel like my education on all this is really starting to ramp up now that we're taking action and it's all pretty exciting, considering the years of "I'm gonna, one day...". Should've acted much sooner!!!

I'd still appreciate feedback on all this as there may be bits of info missing or clarification needed for me and Psyk...

Cheers,
Drew

 

[alexlee]

The thing about a split loan, though, is that if you make any extra payments into the loan, you can't just apply it towards the non-deductible part.
Alex

 

[Herbus]

The thing about a split loan, though, is that if you make any extra payments into the loan, you can't just apply it towards the non-deductible part.
Alex

Interesting,.. think I need to bug you for more info here please - does it complicate things if I make additional payments? I would've thought I could put those extra payments into the personal account and not touch/affect the investing one..?
Would this consideration also apply for money sitting in an offset?
Soz if I ain't clear but I'm a little unclear is all

 

[alexlee]

Interesting,.. think I need to bug you for more info here please - does it complicate things if I make additional payments? I would've thought I could put those extra payments into the personal account and not touch/affect the investing one..?
Would this consideration also apply for money sitting in an offset?
Soz if I ain't clear but I'm a little unclear is all

Ask your accountant for the case reference. I skimmed it a while ago: don't want to give you the wrong info.
Alex