I have a home loan with a 5.2% variable rate and offset account. Basically, I am wondering is it necessary to have the offset account home loan for taxation purposes (as I claim tax deductions for the properties home loan interest expenses). I have heard it is is complex to not have an offset account as when you take money out of a redraw home loan account it makes things messy for taxation reasons.
However, a lot of the cheaper loans don't have an offset account and I'm looking to change to a home loan with just a redraw account. If I change to another loan with just a redraw and no offset account and regularly have money coming in and out of the redraw account, will this create a mess come taxation time?
Thanks in advance for your help.
Short answer yes it will create problems.
I'm assuming it's an investment? otherwise you won't be getting tax deductions anyway.
If you put money into the loan and take it out again to spend on personal items you are contaminating the loan.
You need to keep investment spending and personal spending separate.
You can, however put money into the offset account and take it out again as it is your money. Money you pay into a loan or a redraw is no longer your money, it's the banks money that they may be willing to allow you to reborrow.
BIG difference between an offset and a redraw.
Catalyst wrote:BIG difference between an offset and a redraw.
Take note of this comment. It's very important.
For what it's worth – there's lower rate products on the market with an offset in comparison to what you have.
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]
Heed the warnings of the above.
While a cheaper interest rate may seem enticing, any money you might save may pale in comparison with potential lost thousands in deductibility if not structured correctly.
Cheers,
Tom
and be wary of the court cases where contamination of redraw funds have been spent on personal items and investment loan has occurred. You could lose the Whole deductions that you claim, It does happen.
the cheapest product doesn't always have the best features. Sometimes its worth paying 0.001 or 0.002 % more then your budget home loan. Because that is honestly all it is to get a offset account against a loan product that doesn't feature a offset account.
You could always fix a portion of loan at a low interest rate like 4.79 % for a couple years and leave the other portion Unfixed so you can still have your offset account.
propertymistro wrote:I have a home loan with a 5.2% variable rate and offset account. Basically, I am wondering is it necessary to have the offset account home loan for taxation purposes (as I claim tax deductions for the properties home loan interest expenses). I have heard it is is complex to not have an offset account as when you take money out of a redraw home loan account it makes things messy for taxation reasons.However, a lot of the cheaper loans don't have an offset account and I'm looking to change to a home loan with just a redraw account. If I change to another loan with just a redraw and no offset account and regularly have money coming in and out of the redraw account, will this create a mess come taxation time?
Thanks in advance for your help.
If the property is a main resident there should be no tax issues. But if it were to ever become an investment property then the issues would arise. Depending on the circumstances you could end up with a large loan without being able to deduct any of the interest.
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
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