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LTC Offset mortgage structure

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  • LTC Offset mortgage structure

    Is it legal / sensible to pay personal salaries and savings into an LTC structure for the purposes of offsetting interest on an investment property loan?

    Our personal home mortgage is paid off and we want to use our personal salaries and savings to offset the interest we pay on a $400k mortgage on a investment property, which is to be owned under an LTC.

    If we setup a BNZ total money offset mortgage under the LTC company name and create two accounts, one for the LTC rent and expenses and one for our salaries and surplus savings and general use for groceries, bills etc, is this considered tax avoidance?

  • #2
    How could it be tax avoidance?

    If you operate through one revolving credit facility, the issue becomes what portion is taxable deductible debt and what is personal debt. ie you use your revolving credit facility to pay for $1,000 personal trip, then the interest on this $1,000 isn't deductible. So I wouldn't suggest this, and if you wanted to use a revolving credit in the LTC, I would only put in money you don't need to take out, so maybe one salary, but the other salary goes to a personal account that pays for personal spending. With an LTC you could argue that any withdrawals are to repay the shareholders current account, but it is just a bit messy and probably not documented.

    But, using total money is a lot easier, and the interest on the loan will be fully claimable, without problem. As long as it is in the LTC name, and does relate to a taxable activity.

    Total Money is a good structure and keeps private and business separate, which is great!

    Ross
    Book a free chat here
    Ross Barnett - Property Accountant

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    • #3
      Thanks Ross,

      BNZ however do not allow an LTC company to sit under the same Total money umbrella as our personal accounts (apparently an IRD ruling). We have to setup a completely separate total money system in the name of the LTC so our salaries would effectively be paid into the LTC (albeit in a separate sub account of the LTC total money scheme). ie: we would keep a separate personal and company account however both will be under the LTC total money umbrella.

      Hope that makes sense? I just want to make sure I am understanding this correctly and that even in the total money structure above the loan interest is fully claimable.

      Ned

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      • #4
        Hi there, i am not aware BNZ does not allow it, you may have talked with a rockie clerk, ask to talk with the branch manager or a senior clerk.

        Also the IRD cannot tell what a bank can and cant do, that is the job of the central bank,thanks

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        • #5
          Originally posted by Propertytrader View Post
          Also the IRD cannot tell what a bank can and cant do, that is the job of the central bank,thanks
          I would have thought the bank could have a policy that they don't allow total money to mix between personal and company banking!
          An LTC is still a company.

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          • #6
            Mate i bank with BNZ and i can tell you,one branch can tell you something,then you go to the next branch and they will tell you something else.

            A LTC on the IRD eyes, is a look trough company for tax purposes, so i dont see why the IRD or the bank would have a problem with that.

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            • #7
              We also have a total money account under an LTC and no personal mortgage.

              We have a personal account that our salary gets paid into and spend most of our money on our credit card.
              We keep a buffer in the personal account, but when we get too much we transfer money to the LTC and record a shareholder advance in xero. When we spend a bit much and need to pull some money back to pay the credit card we transfer money back and record drawins in xero.

              It means our shareholder current account gets a bit of churn, but ensures that we aren't complicating our accounting by buying groceries from the property business.

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              • #8
                Thanks guys, I think i will try asking another branch and see whee we go with that. Otherwise it looks like keeping salaries out of the Ltc structure is the way to go to avoid difficult accounting come tax return time.

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                • #9
                  Putting personal salaries into an LTC

                  Originally posted by UncleNed View Post
                  Thanks guys, I think i will try asking another branch and see whee we go with that. Otherwise it looks like keeping salaries out of the Ltc structure is the way to go to avoid difficult accounting come tax return time.
                  Hi Uncle Ned

                  So long as you code any transfers of personal monies in and out of the LTC clearly, then that shouldn't present any problems in accounting for this. That's what the Shareholder Current Account is used for, among other things: to track this.

                  Kind regards
                  Garreth

                  EpsomTax.com

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