X-Coll (Loan Structure) versus Taxman

[Keen]

Hi all

Please be gentle with me as this is my 1st Posting and I'm shortly to take the plunge into the IP world!

I understand how a LOC works, however having read various threads in the forum there is a popular notion that in order not to
Cross Colateral you draw down on your PPOR LOC to raise the 20% deposit to secure your IP.

However as you are pumping in Rental Income, taking out expenses and paying out Interest on your IP from your LOC does it not become complicated and messy to calculate how much interest you can advise the tax department is proportioned to your IP (and prove it to them if the case may be).

Further more will the taxation office disallow such interest to be counted as part of the IP interest as the original purpose / drawing of the loan can not conclusively said to have been for the purchase of an IP. People have LOC for things such as hoilday, cars etc.

Dont get me wrong - I see why you would avoid X- coll but I'm concerned about the above.

Regards & Thanks

 

[D.T.]

Hi,

does it not become complicated and messy to calculate how much interest you can advise the tax department is proportioned to your IP

Keep in mind that any loaned money that is buying IP's will have it's interest tax deductible, regardless of whether you withdrew it from a PPOR or one of your IPs.

If you redrew is from a PPOR there are 2 options that I know of:
1) Some banks allow a separate sub-account, in this case it'd be fairly easy to say one is deductible and one isnt.
2) If not 1), then keep very good records, and utilise a very good accountant, it isnt too much of a drama.

-Hope this is actually correct, and it helps somewhat.

Dave

 

[geoffw]

Keen,

I use a LOC completely for tax deductible expenses only. Even things like books or courses may come out of this account. Rent gets deposited into this account as well.

At tax time, I itemise every item. It's tedious (I've got 4 properties, and 14 income streams) , but it has a couple of benefits for me doing this:
1. It helps me reconcile rents, and to make sure I have listed all incomes
2. It can alert me that there is a receipt which I don't have ready for my accountant.

If I get granted a new LOC, the bank will give me the option of opening a new account, or increasing the limit of my existing account.

I'm in my bank's professional package, so I don't get charged extra for new accounts.

 

[Keen]

Dave,

My PPOR market value 220k loan 120k
going to being refinanced with my employer NAB as they allow
staff to go up LVR 90%

Can you give me an example of a sub - account.

I want to keep my PPOR at 120k and pay it down as I have always done. I want an LOC for the 76k left just for IP's.

Can this be done as one account (split ? / sub account) or because of the LOC do they have to be seperate?

As time goes by and I gain more equity in my house, is it easy and cheap to increase LOC? And what strategy to utilise when I want to use the growing equity in the IP as a LOC.

Your thoughts appreciated and thanks.

 

[Rolf Latham]

Hiya

Do 2 accts, one for the Home Loan and one for the LOC for investment purposes.

Most lenders will allow a resetting of loan limits without huge cost.

Ta

rolf