Accurate allocation of loan drawdowns, capital expenses, and borrowing fees is key to optimising your tax position and reducing future CGT liabilities. Here’s how to manage these in TaxTank, starting with understanding what a loan drawdown is.
What is a Loan Drawdown?
Loan Drawdowns refer to funds released by a lender as part of an approved loan, typically used to cover specific expenses such as property purchases, construction costs, or other major investments. In the context of property investment, Loan drawdowns often occur in stages and are used to fund expenses like settlement costs, legal fees, or construction payments. Properly allocating drawdowns ensures these transactions are accurately recorded for financial tracking and tax compliance.
Construction loans involve multiple drawdowns, released according to project milestones. Allocating these staged transactions appropriately can help maintain clear financial records and ensure compliance with loan agreements. For instance, if you're funding construction projects, categorise each loan installment accurately during financial reconciliation.
Allocating to the 'Loan Drawdowns' Category
In TaxTank, the 'Loan Drawdowns' category allows you to allocate transactions from your bank feeds related to loan drawdowns. This category can also be used for borrowing expenses and capital costs, which need to be recorded separately in TaxTank.
Additionally, as funds from construction loans are released in stages, it is crucial to adjust the remaining loan balance to reflect these disbursements accurately. This helps maintain transparency and ensures alignment with your financial plan.
Possible Loan Drawdown Types
Settlement Fees
Legal fees
Transfer costs
Stamp duty (for investment properties)
Establishment Fees
Loan application fees
Loan processing fees
Valuation fees
Borrowing Expenses
Title search fees
Mortgage registration fees
Lender’s Mortgage Insurance (LMI)
Loan guarantee fees
Construction Costs (for development loans)
Builder’s invoices
Progress payments
Architect or surveyor fees
Capital Costs
Major renovations or improvements
Installation of fixed assets (e.g., solar panels, fencing)
Miscellaneous Costs
Bank or lender fees (e.g., redraw fees, early repayment fees)
Insurance premiums (specific to the loan)
To allocate construction loan drawdowns effectively:
Review the specific drawdown transaction in your loan account.
Categorise the transaction under the Loan Drawdown category in TaxTank.
Save and confirm the transaction to ensure it reflects in your records.
These steps ensure that every construction loan installment is accurately accounted for during the reconciliation process.
Practical Example:
Suppose your construction loan is $500,000. An initial drawdown of $100,000 is recorded. To manage this, record the transaction under the Loan Drawdown category and update the loan details to show $400,000 as the remaining drawdown amount. Following these steps ensures clarity and accuracy in your financial tracking.
💡Key Reminders:
Capital Costs: Add these to the Property Tab in TaxTank to include them in your CGT cost base, which is vital for property investors. Examples include stamp duty and major improvements. Select here to read more.
Borrowing Expenses: Record these under the Loans Tab in TaxTank to ensure deductions are appropriately spread over their eligible period. Examples include loan application fees and lender’s mortgage insurance (LMI). Select here to read more.