Hi All,
I have been reading through many of the posts here around this topic and while I have learned a lot, I cant seem to find a definitive answer for my question so hopefully some one can clarify for me.
I want to know how much of the interest paid on an IO mortgage (with offset) can be claimed on tax if there is no money in the offset account?
For example. I have an IP with an IO mortgage of $500K. there is $0 in my offset account. My monthly interest payment for the mortgage is $3K. Can I claim 100% of the interest paid ($36K p.a.) as a tax deduction?
If not, what is the calculation for the amount of the interest I can claim as a tax deduction?
Thanks
Chris
You claim what you are charged in interest – in your case $36K/annum.
When the loan moves to P & I you will only be able to claim the interest (in your case $36K).
If you mix private, non-deductible expenditure in your loan (or LOC) account then it becomes messy from a taxation perspective as you can only claim the portion of the interest that applies to your investment loan. Based on your description this does not appear to be an issue for you at the moment.
As Derek said you claim the interest you pay. If there is money in the offset you pay less interest and still claim the interest you paid. ie assuming it's a loan for investment purposes (not your PPOR).
All your costs are claimed on your tax- interest, insurance, rates etc.
The definitive answer is found in s 8-1 ITAA 1997.
(1) You can deduct from your assessable income any loss or outgoing to the extent that:
(a) it is incurred in gaining or producing your assessable income;
……
Terryw | 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
Christos76 wrote:I want to know how much of the interest paid on an IO mortgage (with offset) can be claimed on tax if there is no money in the offset account?
All of it.
Cheers
Jamie
Jamie Moore | Pass Go Home Loans Pty Ltd
http://www.passgo.com.au
Email Me | Phone MeMortgage Broker assisting clients Australia wide Email: [email protected]
Hi all,
Thanks for your input.
My current IP is on a P&I mortgage where I have a significant amount in redraw which is reducing the interest. Based on the responses above, i will be switching my mortgage on my IP to an IO with an offset and transferring all my redraw into the offset to make sure I take full advantage. My plan is then to use my offset to put towards paying off a PPOR loan which I will take out when I find a place I want to live in and then purchase.
This got me thinking about taking it a step further and re-mortgaging my investment loan to borrow as much as possible against this IP and keeping the extra funds released from the equity in the offset and then pulling all that out towards the purchase of a PPOR. My follow up question is can I do this since I will be using the offset for non-investment purposes, or will it be OK as long as the re-mortgaging on the IP loan is complete before purchasing the PPOR?
If that is allowable it seems that would make the most sense as I would be taking the maximum equity out of the IP, using it for PPOR, and therefore maximizing my tax benefit. At least that is what I was thinking.
Does that make sense or is there a flaw in my logic?
Thanks,
Chris
Christos76 wrote:… and transferring all my redraw into the offset to make sure I take full advantage. My plan is then to use my offset to put towards paying off a PPOR loan which I will take out when I find a place I want to live in and then purchase.…
Don't do that!. You would have containinated your loan. = disaster.
Terryw | 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
Christos76 wrote:This got me thinking about taking it a step further and re-mortgaging my investment loan to borrow as much as possible against this IP and keeping the extra funds released from the equity in the offset and then pulling all that out towards the purchase of a PPOR. My follow up question is can I do this since I will be using the offset for non-investment purposes, or will it be OK as long as the re-mortgaging on the IP loan is complete before purchasing the PPOR?
If that is allowable it seems that would make the most sense as I would be taking the maximum equity out of the IP, using it for PPOR, and therefore maximizing my tax benefit. At least that is what I was thinking.
Does that make sense or is there a flaw in my logic?
Thanks,
Chris
Doesn't make sense, logic is missing!
you are proposing to borrow money and investing it into a savings account = interest not deductible.
You will be mixing borrowed money with non borrowed money = even more not deductible!A
And you will be using the funds in the offset to buy a private residence = prima facie interest not deductible.
further more the original loan would end up a mixed purpose loan and cause all sorts of other difficutlies in calculating and apportioning interest.
You can see why you need tax advice
Terryw | 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
Thanks for your advice.
Terryw wrote:Christos76 wrote:… and transferring all my redraw into the offset to make sure I take full advantage. My plan is then to use my offset to put towards paying off a PPOR loan which I will take out when I find a place I want to live in and then purchase.…
Don't do that!. You would have containinated your loan. = disaster.
Hi Terry,
I'm not sure what you mean about contaminating my loan.
Heres my plan.
1. Have a $400K IO loan with offset account (containing $100K) for my IP, meaning I only pay interest on $300K.
2. Find a house that I want to purchase to live in.
3. Take out a separate mortgage on this new home as P&I. I will aim to pay this down as much as possible as quickly as possible as it is not a tax-deductible debt.
4. Remove my $100K from offset on my IP mortgage and use this to pay down the home loan, thus maximizing my tax benefits.
My understanding is that the whole amount of the $400K loan on IP will still be claimible as a tax deduction because of the way offset accounts work.
I hope I am correct in this assumption.
Thanks for your advice.
Chris
Christos76 wrote:Thanks for your advice.
Terryw wrote:Christos76 wrote:… and transferring all my redraw into the offset to make sure I take full advantage. My plan is then to use my offset to put towards paying off a PPOR loan which I will take out when I find a place I want to live in and then purchase.…
Don't do that!. You would have containinated your loan. = disaster.
Hi Terry,
I'm not sure what you mean about contaminating my loan.
Heres my plan.
1. Have a $400K IO loan with offset account (containing $100K) for my IP, meaning I only pay interest on $300K.
2. Find a house that I want to purchase to live in.
3. Take out a separate mortgage on this new home as P&I. I will aim to pay this down as much as possible as quickly as possible as it is not a tax-deductible debt.
4. Remove my $100K from offset on my IP mortgage and use this to pay down the home loan, thus maximizing my tax benefits.
My understanding is that the whole amount of the $400K loan on IP will still be claimible as a tax deduction because of the way offset accounts work.
I hope I am correct in this assumption.
Thanks for your advice.
Chris
Sorry, I must have misread up above.
If you are only taking money from an offset account then there would be no tax issues.
Terryw | 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
Christos,
The only way money from the redraw would be tax deductible would be if it was utilised for investment purposes.
If you transfer your redraw money to the offset, as per Terry's post, it is not for investment purposes, and that portion of the loan is not deductible.
Cheers
Tom
You must be logged in to reply to this topic. If you don't have an account, you can register here.
