Terry, I understand that we should keep funds in offset account which I would be doing with my new loan setup. I have a question about what to do (where to get funds for deposit) if we plan to buy new
a) PPOR (turning this into IP) or
b)  IP

As per above reply from Luke, it seems there are different ways to use funds to pay for deposit of the new (PPOR or IP). I was under the impression, I can withdraw funds out of offset to pay for either PPOR or IP and will not loos tax deductiblility if renting out current PPOR.

Thanks

Terry, Thanks. Cant't I argue that there was no way I could produce Cheque from my lender on short notice and transfer into Saving account was only a medium (Which Is confirmed by their short stay parking into my Savings Account)..
..
Do you know what are the penalties if ATO find this arrangement as incorrectly being claimed as deduction?

Here is the Sequence of Events (Purchase Price $320K)
15/06/10 -Paid $800 (.25% of Purchase Price)
25/06/10 -Paid $15200 (To make intial 5% deposit) from redraw of existing PPOR loan. (Variation completed 4 days late on 29/06)
29/06/10 – Variation settled with existing lender – New loan account with the increase setted up
29/07/10 – Transferred remaining 10% ($16000) + Stamp duty $9910 into Savings Account to make cheque and pay for the amount at Settlement

DAMProperty – Seperate $45K loan was setted up (29/06)

Terryw – Moved to Savings Account first. As you know Solicitor would not tell me cheque amount no earlier than the settlement day. And my lender would not deliver Cheque in my hands same day (being online lender)

Please advise if $15,200 (intial) + ($16000) + $9910(Stamp Duty) are deductible for negative gearing purpose. I can prove that I kept pushing my lender to settle varition before 5% deposit payment date.

Can somebody please confirm if Interest on loan taken to pay for stamp duty is tax deductible or not.
E.g. –  I did a 45K topup on my PPOR to pay 10% deposit (32K) for Ip purchase + Approx 10K stamp duty + other purchasing costs. Can I count Interest charged on this loan portion for negative gearing purpose? Thanks

Hey Mick12345, which website is that graph coming from??

Apologies for delay in replying..

So are you suggesting all IP related expenditures to come out of the same offset attached to PPOR?

Agreed, my mistake, when equity has been build up, setup new loan account for the same amount (borrow against it) attached to IP which can be used to fund 2nd IP deposit.

So structure will look like

(1) PPOR (IO Loan) (non-tax-deductible)

– Have an 100% offset account linked to the PPOR loan
– All salaries goes to this offset
– All rents from IP goes to this offset
– Personal bills, personal purchases and loan repayment are paid from this offset
– Credit card can be linked to offset if required

(2) Investment (IP,shares,etc) (IO Loan)
– IP interest, IP bills and capital for share trading are paid from the Offset attached to PPOR
– When equity builds up, borrow against it and setup new loan account.

Please comment..

Thanks
Aman

Thanks Banker !! Awesome Data at your fingertips !!

I am with the same lender and even their product Fact sheet says:

Features:
Unlimited redraws   Yes
Additional repayments  Yes
Offset   Yes (100% offset facility built into loan account)

I will probably clarify with them to make sure its real offset facility.

Hi Terry
  I know I have messed up in my explanation. You have explained well and I understand that but still I am not sure if this apply in my case. I will explain again my dilemma with actual facts. Please help me understand. I really appreciate your time and effort in this.

Current Loan Situation:
Type                                               Redraw Amount                                 Current Balance
Loan Account A – IO                        27000.00                                                  92000.00
Loan Account B – PI                                 0.00                                                  75000.00
Loan Account C – IO                                 0.00                                                  32000.00

Before Loan Structuring, Account A and B were both PI and Loan Account C did not exist. Increased Valuation amount came at $45200. I requested a new Account C to be created for $32000 and remaining increase $13200 to be mixed with LA – A. (That was a mistake, I should have created another account D for that amount). Now amount in A is mix of my personal amount and investment portion. As I understand If I redraw on $13200 for 2nd IP purchase in 6 months time, It will be complex calculation separating Interest component on $13200 and personal loan but its still possible.

As you explained before
"You can't just chose to repay the personal portion first because it is one big loan…. If you pay down the investment portion you are losing tax deductions = paying more tax."

I am thinking of not to pay any extra on this loan (and transfer all personal redraw amount into as I dont want to reduce tax deduction on the investment portion by having more amount in offset. Instead, I will try to pay down Loan Account B which is fully personal amount. What do you say? Will this be easier

OR

I should just refinance my loan with another provider and ask them to setup LOC for 13200 in 6 months time, So that calculation will be easier. Is this possible to separate investment portion and personal loan amount in 6 months time by setting up Loan. Can ATO figue out this nexus?

Loan Account A was $106000 before and has increased to $119000 with $13200 in redraw. Is this considered ($13200) to be paid into the loan or just kept in redraw. I think this is very basic but I still cannot understand that asking my lender to put $13200 into Loan A means paid into the loan or as the amount is sitting in offset means its just a separate account where deductible interest can be proportionated once redrawn.

I understand this now. I borrowed from offset in A to pay for 5% deposit and replaced it back from the loan account C. As the amount has been used for Investment property it is still tax deductible no matter from where it came from.

Instead of proportionating extra deposit between personal amt and investment amt, as written above, I would put all my deposit into my Loan  Account – B.

Being a first time I am still getting my head around this which is causing more confusion When I am trying to explain something. I hope you understand as you seems to helped so many like me before.
Thanks