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Bank loan convertion for tax deductible

 
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Mytschng



Joined: 21 Jun 2005
Posts: 5

PostPosted: Fri Jul 29, 2005 2:17 pm    Post subject: Bank loan convertion for tax deductible Reply with quote

I signed with PBB a fixed loan 200K and Overdraft loan 50K for a shop lot for investment (-ve cash flow) with locked-in period of 4 years. I have been serving my fixed loan for 6 months. I decided to convert my 50K OD to Fixed loan so that the interest paid on the 50K can be included for tax deductible to reduce my chargeable income. My current non-residence income tax is 28%.
I was told by the loan officer that converting the existing OD to Fixed loan can not be done but I can apply to treat the 50K OD as a new fresh fixed loan application. Doing that I need to pay about 2 to 3K for legal fee.
Please advice what other options I have to have the 50K included for tax deductible.
After the locked-in period of 4 years, can I re-finance my existing fixed loan + OD ? Would this re-financing allow me to claim tax deductible on the 50K?
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Banzai



Joined: 25 Oct 2004
Posts: 3367

PostPosted: Fri Jul 29, 2005 5:29 pm    Post subject: Reply with quote

Hi Mytschng,

Wanted to keep this to reply at the EOD when i am more free.

If i understand you correctly, you're saying OD's interests not deductible? are you sure? I'm thinking of cashing out of one of my properties (held under company) to acquire other properties and was wondering if the OD interest can be constituted as a business expense and i was going on the train of thought that it is.

To answer your Q, refinancing it to a loan will definitely qualify for deductions. More importantly, analyse if it is worthwhile doing it now. I think if you were to re-structure your loan with the same bank, i think they would not care too much about the lock-in period (probably subject to negotiation) but you will probably have to pick up the tab on the legal fees etc.

Interest on 50k @ 6% is ~$3000 deductions per year. Let's do a quick math and see what your payback period is. The tax differential for 3k worth of deductions is RM840 per year. Payback is 3-4 years, depending on your legal fees.
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Mytschng



Joined: 21 Jun 2005
Posts: 5

PostPosted: Mon Aug 01, 2005 8:23 am    Post subject: Reply with quote

Hi Banzai,

Quote:

If i understand you correctly, you're saying OD's interests not deductible? are you sure? I'm thinking of cashing out of one of my properties (held under company) to acquire other properties and was wondering if the OD interest can be constituted as a business expense and i was going on the train of thought that it is.


According to my accountant (he filled Malaysia Tax return for me), OD's interests is not deductible but I hold my properties privately. Please confirm with your accountant and let me know whether my accountant is right about OD's interest deductible.
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Banzai



Joined: 25 Oct 2004
Posts: 3367

PostPosted: Mon Aug 01, 2005 9:52 am    Post subject: Reply with quote

Sure.. i will take some time in coming back to you though because i'm fairly busy these days and have not found much time beyond work + renovation + forums.
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