Yet another Rolf type question

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From: Mathew Poxon


Hi all (and Rolf!)

This is probably straight forward but I need it spelled out to me.

Scenario:
Say I buy a property worth 280k which is PPOR. I have 150K cash to put into the property. However I'm able to generate an income trading shares and would like access to some equity to do so. What I'd really like to know is can I LEAVE my 150K cash in my PPOR mortgage (to reduce the non-tax deductible repayments on PPOR) and get a loan or line of credit for say 100k to trade with? (Interest should be tax deductible I think). Note that I DONT want a portfolio of shares which can act as their own security. I want to trade actively short term and thus the loan would be more "at risk". (I'm confident of trading successfully!) In a way its the same as asking can I leave my 150K in my PPOR mortgage and get a loan for say 100K to have a great big party? (Not that I would but you get the idea of a non-secure purpose for the loan).

Is this clear? Hope so.

Answers GREATLY appreciated as hoping to buy said house ASAP.

Cheers,

Matthew.

"Pithy saying still in the making".
 
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Reply: 1
From: Les .



G'day Mathew,

Since you said you had "cash" to put into PPOR, then I can see no reason why you can't choose to put your cash into the PPOR mortgage (via Offset account perhaps) - and then redraw it as you require.

Since it is cash, I assume it has already been taxed in the normal way, and it is yours to do with as you see fit.

Re LOC - yeah, probably also an option, but I have had no dealings with them.

And, if you choose to invest it, then such a withdrawal would attract Tax exemption (but I'm not so sure about any gains in Interest, dividend, or capital growth...) Note that this is opinion only - I'm not a qualified accountant or any such adviser,

Regards,


Les


- "Eschew Obfuscation" - ;^)
 
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Reply: 2
From: LUCJAN ROCZNIAK


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Hi Matt

Why don't you set up a line of credit with your home loan and use this =account as your trading account as well. Home loan with line of credit =is my trading account. Hope this helps.

Luch.

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Hi Matt

Why don't you set up a line of credit with =your home
loan and use this account as your trading account as =well.Home loan
with line of creditis mytrading account.Hope =this
helps.

Luch.

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Reply: 1.1
From: Rolf Latham


Hiya

Les has it sussed.

I prefer offset over LOC since if you remove parked cash for private purposes using LOC then that part is no longer tax deductible.

With an offset it was never in the loan to start with so you dont have that problem.

Ta

Rolf
 
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Reply: 2.1
From: W W


Rolf

Wouldn't a LOC be better in this case as he can put the money into the loan, then withdraw it again for investing. The home loan is reduced and the extra interest is tax deductible.

If he were to use an offset account, the loan would be reduced just as in a LOC, but when the money is taken out, he will may more interest, but it won't be tax deductible.

Regards

Passive
 
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Reply: 2.1.1
From: Les .



I disagree, Passive,

Whether Offset or LOC, so long as the purpose of the withdrawal is for investment purposes, they should both remain deductible.

I may be looking awry, but to me Offset and LOC are roughly equivalent. And Offset is simply offsetting against your "stock-as-a rock" mortgage at x%, while LOC can often be x+0.y% How am I going, Rolf? Do you see the same?

Regards,


Les


- "Eschew Obfuscation" - ;^)
 
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Reply: 2.1.1.1
From: W W


Les

The is no interest charged on an offset account. If you withdraw some money from an offset account linked to your home loan, the interest payable on your home loan would increase. I don't think this increase in interest would be tax deductible. The funds weren't borrowed, just taken from your savings account.

But a LOC or even just a redraw from a normal loan would be ok as the extra interest is from 'borrowed' funds and if these are used for investment purposes it should be claimable.

Regards

Passive. (I'm no accountant)
 
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Reply: 2.1.1.1.1
From: Les .



G'day Passive,

I see where you're coming from now - and I think I need an Accountant's opinion on this one (I'm not one, either ;^)

Dale, can you please shed a little light on this for me. If I have an Offset account that is only borrowed against for Investment purposes, can I claim the increase in mortgage interest that would accompany the withdrawal? And, of course, the Offset is against a mortgage used for Investment purposes, not personal Home Loan...

Thanks in advance,


Les


- "Eschew Obfuscation" - ;^)
 
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Reply: 2.1.1.1.1.1
From: Dale Gatherum-Goss


HI Les!

In my opinion, the increased interest payable on a mortgage as a result of withdrawing money from your offset account will be tax deductible.

This is because the original loan was for tax purposes and the "new" loan will be used to generate income.

However, if the original loan is for your PPOR, it does get very messy and you will add, substantially, to your accounting fees with the work involved.

It is far simpler to use a LOC and keep good records.

Dale
 
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Reply: 2.1.1.1.1.1.1
From: Sim' Hampel


The way I see it, the key is that with an offset account, your loan balance is known and does not change (apart from your regular loan payments etc) when you deposit/withdraw money from your offset account. This certainly makes it easy to see what is happening from a taxation point of view - as opposed to redrawing additional payments on an existing loan or LOC.

If you look at the warnings and rulings on the ATO website, they refer to redrawing from LOCs and such - in particular to split loan type facilities which allow you to maximise your IP interest while minimising your PPOR interest. None of these mention offset accounts (not that this necessarily means much).

 
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