Hi All,
Just wanted to confirm with the forumites here my understanding about the Interest Offset accounts as been discussed in few previous threads.
For example if i have a
– loan on IP = 200000
– Money in Offset = 50000Then interest will be calculated on A$150000.
But if i later redraw 50000 from my offset account even for my personal use then i can still have my entire 200000 IP loan as interest deductible.In nutshell i need to confirm that with the Offset accounts the Interest deductibility of the loan is not affected by the redraws(for whatever purpose) from that account.
Thanks all. -d-
Then interest will be calculated on A$150000.
But if i later redraw 50000 from my offset account even for my personal use then i can still have my entire 200000 IP loan as interest deductibleCorrect![biggrin]…Offset accoounts are a great thing
Hi D,
Woodsman has it correct – the offset account is free to be used as you see fit, the only ‘downside’ is that any withdrawals will see the balance diminish and the next months interest bill increase.
Extending upon this – if you got ‘ahead’ of your IP repayments and then took some money from the loan account to buy something personal then you will run into a tax issue as the loan now includes investment and personal expenses.
A similar (and more complex) problem exists with LOCs.
Derek
[email protected]Property investment advice and researched property in quality locations available.
correct about the offset account, it’s definately the way to go…some people have been recently cuaght out by not having the offset account.
Thanks for your input everybody !
what about a split loan with a P&I content and an interest only content. You can dip into the equity in each, but it makes life very easy for the accountant?
cheers,
Just make sure that the offset account is a 100% offset – not all are.
Terryw
Discover Home Loans
Mortgage Broker
North Sydney
Click below to email meTerryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Hey following on from djones query i have the following problem with my IP loan account:
I made 3 additional repays(big lump sum payments) temporarily into my IP Loan account. Basically my intention was to reduce my tax deductible loan temporarily as i didnt have any other loans at that moment. But within a month i bought a PPOR and have thus withdrawn these additional repayments in total and put this money in the PPOR loan which is non tax deductible.
I understand i should have made these payments in the offset account of teh IP loan but i was unaware of this at the moment….
Is there any way out of this mess as those additional repays were only for a very short time(less then a month and only 3 transction were made) and then withdrawn in 1 transaction.
Just want to know if i have any option or whether i have lost on teh negative gearing aspect of my loan???
Thanks in advance…
hi all,
Please feel free to correct me as I do not know all the ins and out of an offset account, but I learnt this information a my prior work.
Can you have your pay and rental incomes paid directly into your offset account, thus reducing the daily loan amount that the compounding interest rate is worked off.
With this method all your every day expenses can be paid via a 45+ interest free credit card and as long as you pay the balance before occuring any interest you, over the period of the loan, reduce the interest you would have paid quite substantially, as there are lots of expenses that are only incurred annually or less.
My apologies if this was getting to off the topic.
hkr,
logic (well mine anyways) would dictate that, as long as you only redrew the portion of the loan that you paid in surplus (as in paid surply is $100 and redraw is $100) the actual IP loan hasn’t changed in any way. therefore nothing changes in relation to Taxability reduction. PLEASE CORRECT ME IF I’M WRONG! It is almost like using an offset account (except you would have paid more fees) – the principle is the same, but the fees wouldn’t be Tax Deducable (I would think).mpgloss,
I would say that is correct. A lot of the professional packages form the banks run along those lines. Most banks, from memory, wanted you to use a LOC, but the setup you describe is similar. I would put the offset account against your PPOR as its interest is NOT Tax decuctible, so you gain the most benefit.[cigar]Cheers
C@34
Originally posted by hkr:I made 3 additional repays(big lump sum payments) temporarily into my IP Loan account. Basically my intention was to reduce my tax deductible loan temporarily as i didnt have any other loans at that moment. But within a month i bought a PPOR and have thus withdrawn these additional repayments in total and put this money in the PPOR loan which is non tax deductible.
I understand i should have made these payments in the offset account of teh IP loan but i was unaware of this at the moment….
Is there any way out of this mess as those additional repays were only for a very short time(less then a month and only 3 transction were made) and then withdrawn in 1 transaction.
Hi Hkr,
You have lost the deductibility of the redraw as the ATO will treat it is a loan to buy the PPOR. It doesn’t matter how long (or not) you made the temporary repayment the ATO considers you to have paid down the IP loan and then used the funds for private purposes.
In your situation you would have been better advised to temporarily house the funds in an offset account (100%) or in a short fixed term deposit.
Derek
[email protected]Property investment advice and researched property in quality locations available.
Originally posted by mpgloss:Can you have your pay and rental incomes paid directly into your offset account, thus reducing the daily loan amount that the compounding interest rate is worked off.
With this method all your every day expenses can be paid via a 45+ interest free credit card and as long as you pay the balance before occuring any interest you, over the period of the loan, reduce the interest you would have paid quite substantially, as there are lots of expenses that are only incurred annually or less.
My apologies if this was getting to off the topic.
Hi Mpgloss,
Perfectly OK – I have been doing this for a few years and have been making some serious inroads into our home loan.
Derek
[email protected]Property investment advice and researched property in quality locations available.
Thanx Derek,
I learn every day! Glad I didn’t rely on my logic![blush2]
Cheers
C@34
thanks guys, this forum provides such a great oppurtunity for learning.
Originally posted by hkr:Hey following on from djones query i have the following problem with my IP loan account:
I made 3 additional repays(big lump sum payments) temporarily into my IP Loan account. Basically my intention was to reduce my tax deductible loan temporarily as i didnt have any other loans at that moment. But within a month i bought a PPOR and have thus withdrawn these additional repayments in total and put this money in the PPOR loan which is non tax deductible.
I understand i should have made these payments in the offset account of teh IP loan but i was unaware of this at the moment….
Is there any way out of this mess as those additional repays were only for a very short time(less then a month and only 3 transction were made) and then withdrawn in 1 transaction.
Just want to know if i have any option or whether i have lost on teh negative gearing aspect of my loan???
Thanks in advance…
HKR
I agree with Derek. There is no way to rectifiy this now – unfortunately. You have paid down your investment loan, if you redraw from this you will be borrowing money again. If this borrowed money is used to pruchase a new PPOR, then the interest would not be deductible.
Terryw
Discover Home Loans
Mortgage Broker
North Sydney
Click below to email meTerryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Correctamundo ! The money in your offset is yours to do with what you wish and can be withdrawn in part or in full at any time. This is why the institution still requires you to pay the minimum per month as if you had notheing in the offset a/c. So if your minimum payment per month is 1K$ with no offset a/c, even with an offset a/c, the minimum will still be $1K. This is because as i said b4, the money in the offset a/c is yours and the Bank etc has no say in what you do with it. The advantage with an offset (100%) is that because you pay less interest, and you are still paying the full repayment amount, you’re paying it off so much more quickly. Any Help ?
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