Hi All,
Sorry if this has already been covered however I just wanted to see if anyone can clarify the re-draw options which some banks offer.
I am getting a loan through Comm Bank on the wealth package which allows a re-draw option.
My question is, if I do decide to re-draw any additional amounts which I put into the loan, does this affect the tax which I can claim for interest expenses? Or is there anything else which I should be aware of?
Thanks
SK2
Hi Sk2
Yes it will effect your deductibility. I would be getting CBA to split the loan so the potential investment portion is clearly identifiable.
Richard Taylor
Residential & Commercial Finance Broker
**NODOC loans from 6.89%**
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Ph: 07-3720 1888Richard Taylor | Australia's leading private lender
Well, it would depend on what the funds were used for. If for personal expenditure, then you would be creating a mess. If for the property or other business related stuff you should still be able to claim the interest, but you may have to apportion the amounts in your tax return.
Terryw
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Thanks Richard and Terrw.
My plan was to have my full salary paid straight into the loan and cover all my expenses with a credit card. Then at the end of each month I would re-draw the amount required to pay of the credit card.
I will keep in mind what you said if I do need to re-draw.
<edited>. don’t do that if it is an investment loan. Every time your salary is deposited, it will be considered a repayment. Then when you withdraw again it is a reborrowing. So your taxable portion will rapidly decrease to zero.
e. if you had a $100,000 loan and got $100,000 pa paid weekly into the account. After one year your claimable balance would be zero, but you still may have a loan of, say $80,000, because you kept taking money out.
A far better way would be to use a 100% offset account.
Terryw
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Hey, you can’t swear on this site. <edited> <edited> <edited>, bum!
Terryw
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Hi Sk2
I just wanted to say that Terry ‘s advice is spot on ! I wish I knew this before I started using my re-draw to pay personal credit cards etc.
In the end, the calculation of interest became extremely tricky and I received a huge bill from my accountant for the time it took him to work through the investment portions vs personal.
For me – a lesson learned !Hope this helps
regards
belindaThanks for that Terry. I have not actually signed anything yet so i’m glad I checked for opinions here first!
Does anyone know if the Viridian line of credit through Comm Bank can be used like an offset account which Terry mentioned?
Or is it best to just not put all of the salary into the loan in the first place?
SK2
No it can’t so get them to set up a separate Int only / P & I account and link it to their 100% offset A/c.
That way you will have no problems.
Richard Taylor
Residential & Commercial Finance Broker
**NODOC loans from 6.89%**
Licensed Financial Planner
http://www.yourstatefinance.com
[email protected]
Ph: 07-3720 1888Richard Taylor | Australia's leading private lender
SK2
Take out a loan with an offset account for your investment property.
Pay all your living expenses out of a separate credit card (55 days interest free)
Put your pay straight into the offset account.
once a month (or before 55 days is up) simply pay the credit card down with funds from offset account.
Maintains complete tax deductibility of loan.
Reduces interest by having all available wages offsetting loan interest.
55 interest free period further helps to offset loan interest.
No interest apportioning for accountants.
Like a Viridian Line of Credit, this needs a VERY HIGH level of financial discipline and budgeting to be effective.
only difference is that you have to manually clear your credit card once a month instead of it being automatic. But if you are watching your finances as closely as is needed, then this is only minor inconvenience.
As an investor, it took me a while to wrap my head around the tax concept of deductible debt and non-deductible debt. Some investors never do, and get caught $1000’s out of pocket because they payed down an IP loan before they paid down their own house. Or a host of other scenarios that cancel the tax deductibility of loan just because they shuffled money around in the wrong way.
What the loaned money is spent on is what the ATO look at, regardless of what security is used to get the loan.,..
….does this make sense?
Live, Learn and GrowLifexperience
Thanks LifeX, that structure looks like it would still let me achieve my aim of paying costs with the credit card and then pay off the credit card with the offset account instead of through the loan directly.
I’m just not sure if the Viridian line of credit can be used like an offset as Richard mentioned it can’t.
I will speak to the Comm Bank person who gave me the loan details to clarify on it.
The Viridian is a LOC. You actually need a loan account and then a separate savings account. It works because you are not actually paying anything off the loan, your money is going in the savings account.
The viridian has a higher interest rate and monthly charges too. I just closed mine and moved the balance over to ANZ IO with a 100% offset account, on their professional package. Don’t like CBA.
Terryw
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Thanks Terry, Now I feel as though it probably is not the best idea for me to be going with CBA!
Can I just confirm that even though both an offset and a normal loan account with re-draw seem to operate the same way,( Both can have the full salary paid into it, both have the interest calculated off the total amount in the loan and both allow one to take money out at anytime to cover expenses) an offset account is perfectly okay with the tax office to claim interest charges in tax returns?
You would have to confirm that with the ATO, but from my understanding, since they are totally separate and you are not paying any money off the loan, then it should be ok.
Terryw
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I just contacted the ATO however they said someone will get back to me within 24 hours with an answer. I will post what I find out here.
I also contacted CBA and they advised I could have an offset account called the Miser account. Will wait to see what sort of account that is when I receive more information for it.
That’s a good name, ‘miser’! I beleive that is a 100% offset account, but cannot be attached to a Viridian. You may have to settle for the Standard variable. If your loan is large enough, also look at the professional package, MAV.
Good luck with the ATO. If you do get an answer, trying ring back again and asking the same thing – you are likely to get a different answer.
Terryw
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Thought I would add my bit the conversation. I know someone that has a CBA wealth package which you are looking at ($300 a year)
The way I understand the best way to set it up is to open the MISA (morgage interest saver account) as said earlier this is a different account but offsets your loan, the beauty about this is that it can be redrawn for perosnal debt ie to pay off your credit card. My understanding is however that money can only be transfered in and out via phone or through the interenet, so the pay would have to go into an everyday account (next ot zero interest), then be transfered into the MISA. AT time of credit card payment then backout of the MISA into the everyday savings account to be paid into the CC. Sounds complicated but a lot better than the veridian idea and is transferable if you want to move to another property.
Hope this helps
Fish
Thanks for the info Fish. That will be a shame if I can’t have the salary go directly into the MISA account. But I guess if the transfers into MISA can be doing over the net then it should still be okay.
I will check up on that limitation.
Or you could just try another bank. St George has no professional package fee, just a monthly fee per loan – $8 to $12 and a $3 fee for the offset account.
Terryw
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Parramatta
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Hi Terry I originally did intend on going through StGeorge however they let me down in the speed in which they which they seem to work. Maybe it was a rare case however after I had put documents through to StGeorge they came back to me 2 weeks later saying we had to supply additional I.D before they did the valuation on the land!
My land settlement is not till next month so I decided to try CBA and so far they have been more responsive.
I might look into the ANZ option also which you mentioned earlier.
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