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Investors should be wary of lines of credit
Topic Started: 23 Sep 2013, 10:26 PM (1,990 Views)
those
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Thanks for those examples. Very interesting.

I might actually be able to take advantage of a LOC myself like in your example, Trojan. I have an ip (since March)... not sure if it will be ng or not, it will be close. But I put the excess loan amount into an offset account and pay for expences from there, and put rental income in the offset account for my ppor. But the ip offset account is now low that I have to transfer money to it to pay interest. But a loc might be a good option for other expenses. I might ask my accountant about that.
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stinkbug
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those
25 Sep 2013, 01:47 PM
Thanks for those examples. Very interesting.

I might actually be able to take advantage of a LOC myself like in your example, Trojan. I have an ip (since March)... not sure if it will be ng or not, it will be close. But I put the excess loan amount into an offset account and pay for expences from there, and put rental income in the offset account for my ppor. But the ip offset account is now low that I have to transfer money to it to pay interest. But a loc might be a good option for other expenses. I might ask my accountant about that.
I think you'll find the ATO frowns upon this with property, even though they don't seem to care with shares.

Tread carefully, and search the ATO website. Let us know if you find anything useful.
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While it's true that those who win never quit, and those who quit never win, those who never win and never quit are idiots.

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those
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stinkbug
25 Sep 2013, 01:49 PM
I think you'll find the ATO frowns upon this with property, even though they don't seem to care with shares.

Tread carefully, and search the ATO website. Let us know if you find anything useful.
Do you mean using an loc for expenses, or what ive done with the offset account?
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stinkbug
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those
25 Sep 2013, 04:18 PM
Do you mean using an loc for expenses, or what ive done with the offset account?
As I understand it you can't withdraw from your PPOR to make interest payments on your IP loan, and put the rent into you PPOR loan to reduce it.

Other expenses shouldn't be a problem.

Apologies if I've misunderstood your plan.
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While it's true that those who win never quit, and those who quit never win, those who never win and never quit are idiots.

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Trojan
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stinkbug
25 Sep 2013, 04:25 PM
As I understand it you can't withdraw from your PPOR to make interest payments on your IP loan, and put the rent into you PPOR loan to reduce it.

Other expenses shouldn't be a problem.

Apologies if I've misunderstood your plan.
Yep, capitalising interest (interest on interest) is frowned upon by the ATO which is why I was clear to point out that interest expenses are drawn out of my offset account.
Capitalising other expenses however does not fall foul of the ATO.

The above advice is general in nature.
I am not a licensed accountant and you should always seek your own professional advice before acting.
I put trolls and time wasters on my ignore list so if I don't respond to you, you are probably on it ....
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those
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Yeah im pretty sure I understand what you're saying. I actually met with my accountant to ask her if what I was doing was ok.

So, basically after all immediate expenses like solicitor and stamp duty, I had still borrowed about 10k more than I had spent on the ip.

I then spent another 5k, primarily on improvements and interest, prior to renting out the ip. Im not sure if that interest could be capitalised.

I then had 5k left in the offset, which I effectively capitalised by using to pay the interest while not topping up with rental income. I think that's the part the ato would have a problem with.

My accountants advice was: "dont worry about it" and "just send me the spreadsheet with all your costs" and "keep your receipts"

So thats what im doing. Im thinking the ato wont care because the amount being capitalised is limited by the initial loan to a small amount... about 5k.
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Trojan
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those
25 Sep 2013, 09:24 PM
Yeah im pretty sure I understand what you're saying. I actually met with my accountant to ask her if what I was doing was ok.

So, basically after all immediate expenses like solicitor and stamp duty, I had still borrowed about 10k more than I had spent on the ip.

I then spent another 5k, primarily on improvements and interest, prior to renting out the ip. Im not sure if that interest could be capitalised.

I then had 5k left in the offset, which I effectively capitalised by using to pay the interest while not topping up with rental income. I think that's the part the ato would have a problem with.

My accountants advice was: "dont worry about it" and "just send me the spreadsheet with all your costs" and "keep your receipts"

So thats what im doing. Im thinking the ato wont care because the amount being capitalised is limited by the initial loan to a small amount... about 5k.
I personally would not capitalise any interest at all.

As for the ATO won't care because the amount is so small, its like saying I have $100 worth of income which I didn't declare to the ATO.
The ATO is unlikely to come after you for such a small amount but if you ever fell foul of the ATO and they were calculating how much you owed them, you would have a massive accounting bill to proportion your future interest and payments between deductible and non deductible purposes.
I put trolls and time wasters on my ignore list so if I don't respond to you, you are probably on it ....
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