26 Sep 2016

Accumulating your GST in a credit facility

If you accumulate your GST and pay it every three months, put your GST money in there. Loan it in. Put it in your line of credit facility so you’ve got less money owed on that nondeductible debt for as long as possible.

When you need to pay your GST bill you loan it back to the business and you pay the loan back to the business.  The business goes and pays it.

It is the same with your superannuation money.

Whenever you’ve got a money flow or money sitting around for any length of time you want it sitting against this piece of non-deductible debt for as long as you possibly can. This means you’d be getting rid of your nondeductible debt, but as soon as you pay it down – let’s say your GST bill is $50,000 – you could pay down your GST into this account.

You pay off $50,000. And let’s say this personal debt is $100,000. You pay off the personal debt, $50,000, and then what you could do is when it’s drawn out again it’s for a tax deductible reason.

What you’ve just done is converted nondeductible debt to deductible debt. Sometimes you can do that really quickly.

If for example, you’ve got your PPR, and you run a business and your business makes a profit but part of that profit you have to pay to the Tax Office in the form of GST or superannuation, or it might be a creditor that you have to pay. Money’s got to come out.  You receive it in but you don’t have to pay it out for a period time.

That period of time might be three months where you pay your GST bill every three months. It might be three months on superannuation. It might be a month on a creditor bill.

On your house for example, you’ve got $100,000 worth of non-tax deductible debt. So this much is your personal debt on your house. Depending on how the business is structured, what you may be able to do is take that money, put it into your home loan and pay down your home loan. Then when you redraw it, what’s your purpose of the loan? What is the money going towards? Something deductible or not? So the purpose of the loan is to go and pay your GST bill.  That is a tax deductible expense.

So what have you now done? If that was a $20,000 GST bill, what you’ve now done is paid down your nondeductible debt to $80,000 and then when you paid it out again – you have to have the right kind of loan to do this – you paid a $20,000 tax deductible bill.

What you do in that instance, before you pay it back out you get the limit readjusted down to the $80,000 where the debt is. When you pay the $20,000 back out, you pay it out of your investment portion, so you’re not mixing the two debts.

Therefore the interest on that $20,000 is now tax deductible. You could convert nondeductible debt into deductible debt very quickly if you’ve got an operation that has money lying around for periods of time.