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Accessing split loan funds for deposit

Discussion in 'Accounting & Tax' started by Steve_B, 31st Mar, 2016.

  1. Steve_B

    Steve_B Member

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    Hi everyone,

    I couldn't find a thread on this but I'm sure there would be one. So here goes....

    I refinanced an existing IP loan and established a spilt for a future deposit. The funds for the split are available for redraw in its own loan account.

    To access these funds, is it ok to redraw the amount into the split loan account that it's attached to prior to transferring the funds to my solicitors' trust account for settlement on a new IP?

    I want make sure there isn't any implications for doing this. Hopefully worrying about nothing.

    Thanks
     
  2. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    The answer may be in this one
    Tax Tip 63: Don’t cause borrowed funds to take a detour Tax Tip 63: Don’t cause borrowed funds to take a detour

    If the account you draw into has other funds in it the interest won't be deductible (Domjan case). You probably can't pay directly from the loan to the solicitor's trust account (do it if you can) so it may be best to open a new account and move the money to there and then immediately to the solicitor's trust account.
     
    legallyblonde likes this.
  3. Steve_B

    Steve_B Member

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    Thanks @Terry_w

    I would like to clarify a couple of things.

    Initially the refinance was done to access the equity. So it should have been set up as:

    Same Bank

    Loan A (refinance amount for IP1)
    - This should have been linked to my current account which was to offset Loan A. Bank or broker messed it up and created another account for the offset purpose. This is now rectified and the correct account is linked. There is however still the new account sitting there.​

    Loan B - equity release (deposit for IP2)
    - If the 'new account' has no ties to Loan A, would it be feasible to redraw the funds to there before onward movement to the solicitor's trust account (i.e. no implications on contamination and deductibility)? I will point out it has had no activity/transactions since its creation (no $ in, no $ out).​

    Thanks
    Steve
     
  4. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Steve, i don't understand.

    Offset accounts are irrelevant unless you are borrowing and parking money in them.

    Are you saying you want to borrow from loan B and park it in loan A's offset account?
     
  5. Steve_B

    Steve_B Member

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    @Terry_w no, definitely do not want to put those funds into Loan A's offset.

    Forgetting Loan A and its offset, I'll try my best to explain.

    After seeking clarification from the bank, Loan B has an offset account (NAB Classic account) linked to it also. This is a new account created at the time of the refinance. This account has not been used in any way shape or form, no funds in or out, and a zero balance.

    Loan B balance is zero, with the funds available to redraw. So is it possible to redraw into the new offset account and then forward them onto the trust account without risk of contamination. I note in you Tax Tip 63 you mention:

    "Once the borrowed funds are in a savings or cheque account they are no longer borrowed funds. And then once borrowed funds are mixed with other cash then it is impossible to separate the borrowed funds".

    That quote gives me cause for concern as it is a NAB classic account linked as an offset. Does this type of account fall under what you say in Tax Tip 63?

    I'm struggling to understand how one should route their new equity loan funds to trust for a new purchase?

    Apologies for all the questions.
     
    Last edited: 1st Apr, 2016
  6. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    ideally get the money transferred from the loan to its destination without any detour.

    If not possible then park it into a clean account with no other cash in it and then immediately transfer it from there to the destination.

    I cannot guarantee the ATO will accept this, but you should be able to clearly trace the funds and there are no mixings invovled.
     
  7. Steve_B

    Steve_B Member

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    Ideally how should a split loan/equity release be setup in order to allow the redrawn amount to be be transferred directly from a loan account?

    Or what type of account can the redrawn amount be sent to prior to it being sent its final destination?

    I guess something has gone astray through the setting up of all this. I want learn how best to arrange the split/equity release for future buys, if I am not able to rectify it now.

    Thanks
     
  8. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    A LOC is the ideal from tax pov, but NAB's LOC has a very high rate.
     
  9. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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  10. Steve_B

    Steve_B Member

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    Thanks Terry