Please help me...a Redraw Problem

Could someone please help me and advise if there is a solution to this problem?

I own an investment unit. There is $250,000 left on the loan for this unit and $2,550.20 in the redraw facility.

I am refinancing the property to release some equity and buy another property. Husband went and withdrew $2,550.20 sitting in the redraw and transferred it into a cash account. When I realised what he had done twenty minutes later, before the money was used, I transferred the money back into the redraw. Thus, no interest had accrued on the money that was redrawn and it was not used for anything, merely replaced.

This loan will be refinanced with a different bank in a day or so. My questions are as follows:

a. Can we still claim tax deductions on the $250,000 or have I now lost that tax benefit?

b. Will this complicate things further when the loan is refinanced? Will I be able to claim tax deductions from the $250,000 in the new refinanced loan of the property?

Please please advise what I need to do to fix this situation and if I have completely stuffed up.

Many many thanks!

Leilah

 

Tagging @Terry_w and @Paul@PFI

 

I'm not an accountant but I personally wouldn't lose sleep over it. It's not like you've intentionally done something dodgy - it was an honest mistake that was corrected straight away and there'd be clear evidence of it.

Again - I'm not a bean counter though and they might have a different take on the matter.

 

Thank you Jaimie. I greatly appreciate it and your comments will make me sleep better at night. I agree, think paying the exact amount straight away would evidence my intentions.

Does anyone else have anything to add to this?

Cheers

Leilah

 

What are you worried about a couple of grand for ?

By paying into the loan, you already reduced it by the the 2550.20 so you can only claim 250- this amount anyway, either way, it is nothing to panic over.

 

You cannot put ANY money into loan then redraw without reducing the loan.

So if your loan is 250k & you get 100k that you only put into loan for 1 week, then re draw it, your loan that you can claim is 150k.

This is why people have/use offset, and needs to be a proper offset, as some lenders call it an offset but it is a re draw facility.

 

Lol

You had a mixed loan when the husband borrowed the $2550 and you mixed it more when you put it back.

You will have to work ou the percentages and then only claim that percent of the loan. If it is IO it will be easy to work out, if it is PI it will be a nightmare to work out.

Approx 95% or more would be the deductible portion.

 

Terry

It was a principle and interest loan.

But if he took out the $2,550 and then we put it straight back in twenty minutes later am I correct in presuming that there is nothing to work out and that the full $250,000 loan remains tax deductible because we have put the exact amount back in and no interest was charged? Is this allowable?

Cheers

Leilah

 

So does this now mean that I reduce $250,000 by the $2,500 and that is now the amount that I can claim tax deduction for the interests on?

I'm beginning to get really worried because the loan is being refinanced as we speak. What do I do?

 

Not Terry, but no.

To me you have reduced it by the 2550.20..... twice, as Terry pointed out, but has there been any other money at all ?

I think you better just wipe off a certain section of the loan to be safe, you can do that by varying the split, now, or later....still nothing to panic about, even if it is 10k, it is only the interest portion of that

 

PI means each month it is mixing further.

No you are not correct as I explained above.

If you think timing doesn't matter try putting 30ml of milk in a glass of orange juice and taking it out just 1 min later!

 

Read this for starters

Tax Tip 44: How to Un-Mix a Mixed Loan https://propertychat.com.au/community/threads/tax-tip-44-how-to-un-mix-a-mixed-loan.4406/

 

There has not been any other money that has been withdrawn from the redraw. This is the first time.

Right so I have now reduced the taxability of the loan by double that amount. Got it. So if I were to create a split of $6,000 and $244,000 that would make it clearer if any questions were later asked.

So with the refinance can I easily get the bank to add a split into the loan? Or will they not do it once the wheels are in motion? I just want everything to be clear.

 

$6k isn't correct. It would be less.

You should split the loan now before it settles. But keep in mind most lenders have a minimum split size. Some don't.

 

I think you have a lot of options to potentially clean this up, I can think of a few ways, but do not have all the details and do not want to advise, I may get it wrong too ! I just saw the P&I part, that complicates it.

maybe you should ask your accountant tomorrow what they want you to do. Whatever you do, do not panic, everyone makes mistakes & often the banks make them for all of us.

I just saw Terry posted his tip.

Due to P&I, I do not think just doing 6k will be enough, again, not the end of the world and once split off, you could pay out then draw this for further investment use.

 

Would that not depend on the time in the P&I loan ?

I would do more, then split, pay out and recycle/use for other investment based debt. If new loan is P&I as well, I suppose any amount is ok, I prefer round figures (says someone with so many weird numbers).

 

BTW the ATO may not take a strict legal point of view - they may let you off, if they catch you. Seek tax advice.

 

The new loan is interest only. I am trying to restructure loans properly (and stuffing up even more as I go on!!!). But I am adamant I am going to sort it out before I actually purchase the new investment property. We have not exchanged yet but the loans are almost set up.

Does this make it worse, i.e. that new loan is interest only?