redraw vs offset

Viewing 5 posts - 1 through 5 (of 5 total)

Stevo83
Member
@stevo83
Join Date: 2011
Post Count: 1
January 6, 2011 - 1:14 am
Hi there,
I am wanting clarification of the tax disadvantages associated with having money tied up in redraw.
the plan is for my partner and I to buy a townhouse to live in for a few years and then keep it as an investment and upgrade to a house. What i am unsure about is weather to opt for an offset account loan or pay into redraw. We have heard that the tax man will take a chunk if we take out the extra money we have in redraw when we upgrade.
Using the scenario below can somebody explain what would happen.
we pay an extra $7000/yr into redraw.
After 10yrs we keep the townhouse as an investment property and take out the $70,000 in redraw to put towards the new house upgrade.
Another scenario might be
If after 10yrs we decided to sell the townhouse and not keep it as an investment and upgrade to a house would there be any disadvantages with having the $70,000 in redraw?
Cheers
Jamie Moore
Participant
@jamie-m
Join Date: 2010
Post Count: 5,069
January 6, 2011 - 6:27 am
Hi Stevo
Welcome to the forum. I'd just set-up an interest only loan with an offset attached. Place any spare cash you have in it, and you won't need to worry about issues with the taxman when it comes to redrawing later on.
Jamie Moore | Pass Go Home Loans Pty Ltd
http://www.passgo.com.au
Email Me | Phone Me
Mortgage Broker assisting clients Australia wide Email: [email protected]
Terryw
Participant
@terryw
Join Date: 2001
Post Count: 16,213
January 7, 2011 - 12:47 am
Never use redraw. It is more dangerous than nude skydiving.
Just remember that money taken out out redraw is the same as borrowing new money. interest on new borrowings will only be deductible if it is used for investment purposes.
Using an offset account avoids this by saving you the same interest and not paying down the loan.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email Me
Lawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Jamie Moore
Participant
@jamie-m
Join Date: 2010
Post Count: 5,069
January 7, 2011 - 10:50 pm
Terryw wrote:
Never use redraw. It is more dangerous than nude skydiving.
Haha, nice. Do you mind if I use that one with my clients? Might splash it accross my website.
Jamie Moore | Pass Go Home Loans Pty Ltd
http://www.passgo.com.au
Email Me | Phone Me
Mortgage Broker assisting clients Australia wide Email: [email protected]
Terryw
Participant
@terryw
Join Date: 2001
Post Count: 16,213
January 7, 2011 - 11:15 pm
Its cold on the extremities apparently.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email Me
Lawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au