Home Loan for Investment Purposes

Hasbulla on 09/09/2022 - 13:22

Under our family trust, I am buying some company shares as an ($100k) investment and would like to pull out the money out of my current home loan.

My plan is to have the business portion of this loan to be as high as possible to ensure that the tax deductibility of the loan is as high as possible for the length of the loan (25y).

We have an healthy offset account and was thinking of transferring this offset balance into the mortgage so that the interest charged is able to be claimed at the higher rate as a tax deduction each and every year at the highest possible amount for these 25 years loan duration, resulting in a reduction in income tax payable on the business distributions.

Is this making sense at all?
Do I need to pull them out as a redraw?
As a split loan?
I'm pretty lost.

! not financial advice I'm after - just keeping the OzBargainers busy on slow eneloop days !

Financial

Comments

  • netjock on 09/09/2022 - 13:38
    +4

    Under our family trust, I am buying some company shares as an ($100k) investment and would like to pull out the money out of my current home loan.

    Find an accountant. I assume the company shares are under family trust name. So how are you going to show the $100k is tied to an asset that is generating income that you pay taxes on.

    • Hasbulla on 09/09/2022 - 14:26

      corporate trust if that helps

      • netjock on 09/09/2022 - 15:30

        ATO is going to ask. What is in it for me?

        What the family trust is doing with the $100k? Buy shares and take the dividends and not pay you anything, keep it all as retained profits? Is your intent on claiming tax deduction personally but pay corporations tax. That sounds like tax evasion.

        People usually setup family trusts when they run a business so they can distribute the income to lower tax rate beneficiaries. We don't know if your family trust actually does anything else.

        Best to talk to an accountant.

  • mbck on 09/09/2022 - 13:50
    +2

    Mixing family home and business. Might mean you lose out on the cgt exemption.

    Talk to an accountant.

    • Hasbulla on 09/09/2022 - 14:26
      -1

      I don't think that's the case

  • pharkurnell on 09/09/2022 - 13:57
    +1

    Accountant….

    • Hasbulla on 09/09/2022 - 14:27
      -2

      they are only good for eneloop bargains

  • elgrande on 09/09/2022 - 14:15
    +2

    Is this making sense at all?

    You lost me at family trust.

    • Hasbulla on 09/09/2022 - 14:27

      at least you got the meaning of 'under our'

  • donbot on 09/09/2022 - 14:16
    +2

    Talk to an accountant, but essentially its something like:

    1. Split your home loan, carving off $100k as a seperate loan. Better yet if you can interest only it to maximise longevity - and paydown the non-deductible debt faster with the extra cash free'd up from IO on the $100k loan.

    2. Repay the $100k loan entirely.

    3. Redraw the $100k loan directly into FT.

    4. Pay for the shares using those proceeds in FT.

    5. Do not contaminate the $100k loan with repayments/redraws/etc.

    This should do it for deductibility purposes,

    • Hasbulla on 09/09/2022 - 14:25

      Crystal clear. Thanks!

      However, is this the most efficient tax minimisation outcome?
      I understand it's best I move all the offset into the mortgage, prior to your item 1, the redraw.
      Well actually move all the offset bar for the 100k that I will need to action your items 2, repay.
      I understand that this way, for a taxation perspective, it's like taking a photo of the portion of the $100k split that will last for the full life of the mortgage.

      Thus, something like:

      1. Move all your current offset, minus $100k into your mortgage

      2. Split your home loan, carving off $100k as a seperate loan. Better yet if you can interest only it to maximise longevity - and paydown the non-deductible debt faster with the extra cash free'd up from IO on the $100k loan.

      3. Repay the $100k loan entirely.

      4. Redraw the $100k loan directly into FT.

      5. Pay for the shares using those proceeds in FT.

      6. Do not contaminate the $100k loan with repayments/redraws/etc.

      • donbot on 09/09/2022 - 14:27
        +1

        You kind of lose me with your explanation, but the ultimate test is looking at the funds borrowed from the bank (the $$ that actually meant you have a liability to pay back the bank) - what were they used for?

        If investment, then deductible.
        If personal, then non-deductible.
        If mixed investment/personal - its a mess, avoid.

        Thats why I suggest hiving off $100k of the loan to a seperate loan. That way you quarantine it, and cant contaminate it by using it for non-deductible purposes.

        • Hasbulla on 09/09/2022 - 14:29

          ok, so, keep them well separate.
          However, by a separate loan, you still refer to the home loan I guess.
          Which is at way better rate than a brand new business loan.
          Correct?

          • donbot on 09/09/2022 - 14:31
            +1

            @Hasbulla: Correct. ATO will not care what secures the loan - just the use of the funds.

            Its questionable if a bank would give you a business loan for $100k investment in a company without additional security anyway - so it may as well be your home loan unless you have something else they can take security on?

            • Hasbulla on 09/09/2022 - 14:37

              @donbot: Agreed.
              The whole aim of the post was to do with the fact that I was under the illusion that the amount due on the mortgage had a weight on the taxation of the business portion.
              For some reason, my rationale was 'the smaller the mortgage', the greater the business loan/home mortgage ratio, the greater the tax deductibility.

  • loulou1 on 09/09/2022 - 16:14
    -1

    Fixed trust? Discretionary trust? Essentially you are lending money to the trust to buy the shares?
    Talk to your accountant!

    • Hasbulla on 09/09/2022 - 19:05

      Discretionary.
      I’ll be lending the money to myself as a trustee for the family trust.

  • freefall101 on 09/09/2022 - 17:40
    +1

    Talk to your accountant, because this is far more complicated than you're making it out to be and the right answer will depend on your circumstances.

    You and the trust are separate entities, it's buying the asset and you have the loan. So you need an agreement written up between yourself and the trust for the trust to pay interest to you at a fair rate, which becomes income for you and then the loan is deductible for you. What the trust is paying you in terms of interest is then a deduction within the trust.

    But without that loan agreement, no deduction, the ATO will just flat out say no. You also need terms, what interest rate, what is repayable, how does this work with your mortgage, how do you track all of it without the ATO crawling up your rear?

    That's not even going into the legal side of things. If you die, the trust may have to repay the loan which means disposing of the assets and triggering capital gains that wipe out any benefit anyway. You can't just treat a trust like a tax haven and you definitely shouldn't be getting advice off the internet on what you can do with one.

    • Hasbulla on 09/09/2022 - 19:09

      Never heard of a loan agreement ever.
      You never stop learning.

      You track it very easily with a split loan facility.

      If I die there’s default figures stepping in.

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