Equanimity Concepts a novel concept for investment

Hello, i am curious whether anyone has had any experience with this type of wealth creation, by using all investment property income and funds to pay down their initial personal debt (mortgage on own property first). A strategy that is being promoted by a Company called Equanimity Concepts. The particular strategy is explained in detail on their website, which i have attached a link too.

http://equanimityconcepts.com.au/

I would appreciate any feedback on this concept. Thankyou.

paying off non-tax deductible debt before paying down taxable debt is investment 101. There're strategy isnt secret or new - its just they deliver a 'turn key solution' - i.e. they do it ALL.

So am I correct in assuming there are banks and financial institutions that will finance all expenses associated with the running of the investment, and not require the payment of interest until a much later date?

I assume this strategy relies on the particular investment property to increase in capital value considerably to enable the eventual service or payout of the increasing investment debt.

How does the tax office favour this knid of investment.

Has anyone experienced this form of financial support for property investment?

prc said:

So am I correct in assuming there are banks and financial institutions that will finance all expenses associated with the running of the investment, and not require the payment of interest until a much later date?

I assume this strategy relies on the particular investment property to increase in capital value considerably to enable the eventual service or payout of the increasing investment debt.

How does the tax office favour this knid of investment.

Has anyone experienced this form of financial support for property investment?

Click to expand...

Oh - I didnt see that bit.

One of the smarter people here will be able to confirm - but I'm pretty sure the Tax Department doesnt look favorably upon this, because you are basically getting the negative gearing due to payments on your PPOR - and therefore getting a tax benefit on a non-income producing asset (in a round about way)....

edit: another way of thinking about it is you are basically "shifting" your PPOR debt to your investment debt. I.e. if you pay $500 on your PPOR home loan, and incur $500 extra on your investment loan, you've just 'shifted' it from one to the other.

Here's another one from Canterbury in the same vein, this one is an animation - with some interesting figures thrown in to speed up the process

YouTube Clicky Link

redwing said:

Here's another one from Canterbury in the same vein, this one is an animation - with some interesting figures thrown in to speed up the process

YouTube Clicky Link

Click to expand...

Hmmm... Where would one find a $50,000 investment with a "proven, stable, passive income of $3000 pm" which is step 3 of the process? That's a $36k pa return on the $50k!

And they say "you must get the order right"... Instead of buying an IP with home equity, why not just by multiples of this $50k investment?

OK, I know this piece is aimed at the "uneducated" to get them thinking (is sucked in too strong?) but something smells fishy to me.

wobbycarly said:

Hmmm... Where would one find a $50,000 investment with a "proven, stable, passive income of $3000 pm" which is step 3 of the process? That's a $36k pa return on the $50k!

And they say "you must get the order right"... Instead of buying an IP with home equity, why not just by multiples of this $50k investment?

OK, I know this piece is aimed at the "uneducated" to get them thinking (is sucked in too strong?) but something smells fishy to me.

Click to expand...

Yep,

Gotta be careful when you're out fishing

laurencei said:

paying off non-tax deductible debt before paying down taxable debt is investment 101.

Click to expand...

True.

And how's this; when we sold our PPoR last year, we ended up with a good deal of cash left over to pay for the build of the new PPoR. basically, the sale of one will cover the build of the other with virtually no debt. Nice.

At that time, we still had $250k of borrowings on our block of land (which the new PPoR is being built on) and this debt is in our names and therefore non-deductible. No worries; it is a way-smaller amount than the investment debt.

As well as that, we still have IP debt and our business purchase loan - all deductible investment debt.

The Which Bank wanted us to pay out our (investment) loans with the funds from the PPoR purchase, and then re-borrow the amount of money to fund the build.

This would mean all our deductible debt would be gone, and we would replace it with non-deductible debt.

This has a significant impact on cashflow (after tax income), but the Bank could not see the problem with this.

We eventually were able to convice them that the best way to go forward (for us; not them) was to use the funds for the build and keep the deductible debt.

So ignorance about this strategy is not exclusive to us normal penguins; even the Banks (at least the level of staff that we have to deal with anyway) often don't get it.

prc said:

So am I correct in assuming there are banks and financial institutions that will finance all expenses associated with the running of the investment, and not require the payment of interest until a much later date?

I assume this strategy relies on the particular investment property to increase in capital value considerably to enable the eventual service or payout of the increasing investment debt.

How does the tax office favour this knid of investment.

Has anyone experienced this form of financial support for property investment?

Click to expand...

I think this is referring to "capitalising the interest", or at the very least using an ARM (adjustable rate mortgage) type of product whereby the paying of (some) of the interest is delayed for a set period.

Of course, the interest is added onto the Principal, so you'd better hope the value of the property goes up by at least that much, or you will have more debt than value when the interest rate reverts to normal.

There have been a couple of cases over the recent years whereby the income from the IP is used to pay down non-deductible debt while the deductible debt is left to keep on increasing, and the investor has claimed a higher amount of interest on their tax return. I think one case was ruled against, one in favour.

Be careful.

However; having said that, the ARM product can work if you are disciplined and use the cheaper interest rate period to smash the Principal down with extra funds paid into the loan.

ARM's (and the mortgage brokers might be able to confirm through their experience) could also have a limit on the amount of principal you can pay back during the period of reduced IR.

BayView said:

Of course, the interest is added onto the Principal, so you'd better hope the value of the property goes up by at least that much, or you will have more debt than value when the interest rate reverts to normal.

Click to expand...

But... but... but... they didn't say anything about THAT in the video!

Don't let facts get in the way of a good scheme.

BayView said:

The Which Bank wanted us to pay out our (investment) loans with the funds from the PPoR purchase, and then re-borrow the amount of money to fund the build.

This would mean all our deductible debt would be gone, and we would replace it with non-deductible debt.

This has a significant impact on cashflow (after tax income), but the Bank could not see the problem with this.

We eventually were able to convice them that the best way to go forward (for us; not them) was to use the funds for the build and keep the deductible debt.

Click to expand...

Mind-boggling, just mind-blowing...

BayView said:

There have been a couple of cases over the recent years whereby the income from the IP is used to pay down non-deductible debt while the deductible debt is left to keep on increasing, and the investor has claimed a higher amount of interest on their tax return. I think one case was ruled against, one in favour.

Be careful.

Click to expand...

I've heard about these from an accountant friend. It sounds like dangerous territory.

Capitalising interest on a property is not for the faint hearted, undisciplined, or unwealthy, I'd reckon.

I think where this needs a lot of investigation is that by capitalizing the interest on the investment loan you are artificially inflating a tax deduction. I think this runs foul of part 4, Sec 52 of the tax act around avoidance or creating artificial schemes or situations. I think that if you dont claim the inflated deduction and stick to what it might have been if you weren't allowing it to inflate you might be okay but Im no tax advisor. The other big issue is that the ATO is looking for money and when they are in hunting for money mode, anything can be kibosh. Lets face it, who has the money to take on the ATO?

I would appreciate comment from anyone who is a tax advisor?

The ATO has put out a TD on capitalising interest. There are actually 2 relevant TDs. The earlier one said that interest on interest will be deductible if the underlying interest is deductible. ie same principals apply.

The second ruling looks at what is the purpose for capitalising? If it is to pay down the non deductible debt sooner than the ATO can apply part IVA of the Tax Act and deny the deductions because this is a scheme entered into with the dominant purpose of tax deductions.

So if you are intending on entering such an arrangement consider why you are doing so and then consider getting a private binding ruling from the ATO saying they will allow the deductions.

see
TD 2008/27
http://law.ato.gov.au/atolaw/view.htm?docid=TXD/TD200827/NAT/ATO/00001


TD 2011/D8 http://law.ato.gov.au/pdf/pbr/td2011-d008.pdf

I've had a look at that company's website. It is very nicely designed, but they are not licensed to provide legal or tax advice, they are mortgage brokers and real estate agents...