Prepay interest Vs LOC loan

[fatboy4]

We have had some CG this financial year and are prepaying next year's interest in order to reduce our taxable income. We have sold 3 IP's and a PPR and still have 7 IP's and an interest bill of about 70k. The taxable CG (after discount) is about 80k, to be split fairly equally between us) We have taxable incomes (not including rent) of about 60k each; so there are big benefits to prepaying the interest.

My problem is that we would like to set up a LOC facility and invest additional money into shares (ie follow the NAVRA plan).

It seems to me that LOC's and interest prepaid loans are incompatible as the ATO requires a specific prepaid loan rather than just paying in advance with an ordinary "arrears" loan. It seems unlikely that the ATO would accept a facility with the fluidity of a LOC.

Has anybody looked into this before? I have searched the threads and haven't seen it discussed.

Any alternatives to an LOC that allow flexibility, access to equity and prepayment of interest?

 

[Rolf Latham]

Hiya FB

The consideration for pre paying interest must be that you receive a commercial considertaion for doing so. Minimising tax in the year of pre payment is NOT one of them. BUT, most lenders have a FIXED interest only in advance option where they give you a .10 % discount, voila theres your commercial reason

Soooooo, LOC and fixed is by its nature not going to work. A line of credit cant be on a fixed interest, because you can vary the loan amount.

Id suggest that with 7 properties under your belt youd be able to put a structure together where you can cocktail some loans, say a part fixed IOA and some LOC ( or IO with 100 % offset) to get the best of both worlds.

Chase down a good independent broker and get to it :O), though I reckon youve missed the boat except for existing loans/lenders that you may be able to do a product switch

ta

rolf

 

[fatboy4]

Thanks Rolf,

I do need a good broker, things are getting a bit complicated...

Thanks for the advice on the cocktail (loan) , that hadn't occured to me.

I have been working with existing lenders to do the Int Only Advance switch, and will have it organised in time.

Thanks again
fatboy4

 

[Janfan]

finance structure

FB/Rolf

I have been considering finanance structure recently.

The mortgage broker I use told me that he is not allowed to give advice on structure as he is not a FP - so he sticks to mortgage types and details
and advised me to find an accountant.

Your approach seems to differ. what should I expectfrom MB?


Janfan

 

[Rolf Latham]

Hiya JF

Your MB is legally correct, but I also suspect that this may be a cop-out. Im sure I often overstep the mark but always ask for anything out of the ordinary to be signed of by an acctant. Often, the acctant is clueless anyway, and a more savvy one needs to be found.

Ta

rolf

 

[Janfan]

Rolf

Thanks for the reply.

But that is the nub of the Problem- I am struggling to find someone to give me right or any advice for that matter.

maybe you could offer some advice

basic facts are

PPOR paid off LOC 250K used 100k for dep on IP

IP1 - IO loan 325k - with offset acc.

If I park excess funds in offset acc , does this cloud deductible debt
funds here may be quite fluid- salary , bonus, commission , savings

If I have another account I don't reduce debt and pay tax. Maybe funds would be better used elsewere say shares.

any thoughts will be appreciated

regards

Janfan

 

[Rolf Latham]

Hi JF

The ATO wont mind you reducing your tax deductions im sure.

As long as the money is kept in a discrete acct and not in the loan itself, there wont be a problem given current interpretations of "your money"


Ta
rolf