Join Australia's most dynamic and respected property investment community

20% Deposit from Loan a/c and offset

Discussion in 'Accounting & Tax' started by JK200SX, 4th Sep, 2015.

  1. JK200SX

    JK200SX Well-Known Member

    Joined:
    24th Jun, 2015
    Posts:
    222
    Location:
    Melbourne
    Can you cause a problem with tax deductibility if you do the following:

    - the balance of the 20% is due at settlement
    - the nominated account to draw the remaining 20% out of already exists and is an offset account for another loan. (only one a/c can be nominated for these funds on the loan docs)
    - I have an amount of money that is in a tax deductible loan and I wish to use this balance to pay for part of the 20% deposit on the new property. Can I move this money into the offset account prior to settlement so it can be used as part of the balance of the 20% funds for settlement.

    Will this cause a problem with tax deductibility for the account the the funds were drawn from?
     
  2. chylld

    chylld Well-Known Member

    Joined:
    25th Jun, 2015
    Posts:
    596
    Location:
    Sydney
  3. JK200SX

    JK200SX Well-Known Member

    Joined:
    24th Jun, 2015
    Posts:
    222
    Location:
    Melbourne
    The loan that the money will be coming out of is for investment purposes only, and the offset account is attached to this loan.

    So what I'm saying is that I need to transfer an amount of redraw from the loan account to the offset account. A few days later as part of settlement, funds will be taken from the offset account to make up the 20% deposit for the new investment. The new investment will then have a separate loan.
     
  4. Perthguy

    Perthguy Well-Known Member

    Joined:
    23rd Jun, 2015
    Posts:
    4,801
    Location:
    Perth
    Are there non-borrowed funds in the offset account?
     
  5. JK200SX

    JK200SX Well-Known Member

    Joined:
    24th Jun, 2015
    Posts:
    222
    Location:
    Melbourne
    Salaries, rentals etc go into the offset.
     
  6. Perthguy

    Perthguy Well-Known Member

    Joined:
    23rd Jun, 2015
    Posts:
    4,801
    Location:
    Perth
    My understanding is that mixing borrowed funds and non-borrowed funds will cause a problem with tax deductibility. Can the fund be paid straight from the loan account without going through another account? I am having the same issue as you so I am organising for the funds to be taken directly from the loan account.
     
  7. chylld

    chylld Well-Known Member

    Joined:
    25th Jun, 2015
    Posts:
    596
    Location:
    Sydney
    When you pay for the new investment out of the offset, it isn't clear whether you're using salary money or redraw money from the investment loan. Definitely look into paying for the investment directly from the investment loan as Perthguy suggests
     
  8. Paul@PFI

    Paul@PFI Tax Accounting + SMSF Business Member

    Joined:
    18th Jun, 2015
    Posts:
    2,400
    Location:
    Sydney
    There can be some confusion with drawing $ from an offset and if this affected deductions.

    Firstly remember a offset is NOT a loan account but is a savings account attached to a loan. If the loan is deductible then the $ in the offset reduce the deduction benefit. If the loan is a PPOR then the deduction benefit is not affected since there is nil benefit.

    When the offset cash is spent for whatever purpose the loan interest will go up. But the loan hasn't changed. The offset money is not a new loan or a change to borrowing. The increased interest will be either deductible or non-deductible exactly as it was previously - Just a bit higher.

    So to address the OP question. If the existing IP loan has an offset where you are holding the 20% then when you drawn the 20% the existing IP tax deduction will increase. Not the new property. Using the offset $ restores the loan...

    So if the loan linked to the offset is non-deductible you really need to rethink this. All you would do is inflate the non-deductible loan interest. If its a IP loan then the increased deduction goes to the original IP not the new one.

    However, if the funds are being drawn down from a loan and then parked into a offset before settlement I would try and ensure that the new borrowing only goes into a account (savings, offset or otherwise) that has no other funds in it. If this means you need an additional savings account for a short term period then do it.
     
  9. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

    Joined:
    18th Jun, 2015
    Posts:
    9,045
    Location:
    Sydney
    Yes it will probably cause a problem. Use a bank cheque instead.
     
    Perthguy likes this.