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All rent going into one bank account?

Discussion in 'Accounting & Tax' started by Bombers86, 19th Oct, 2015.

  1. Bombers86

    Bombers86 Member

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    Hi to all you property legends,

    Sorry for what might seem like a very basic question - I'm just wondering if having all rental income from different IP's going into one bank account is ok or does that have tax implications?

    For example I have one IP with one lender, but I have the rent generated from that IP going into my offset account of the property I live in with another lender. I'm not sure if I'm overthinking this or if it means when i go see my accountant he will say "well that money is generated from an investment so should not be used to offset your PPOR"... Should I have offset accounts set up for all IP's and the rent just going into the relevant offset account linked to the IP?? Hoping this makes sense?? Thanks to anyone who can shed any light or a previous thread where this has been discussed.
     
  2. HD_ACE

    HD_ACE Game-Changer Premium Member

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    Thats ok. All monies offseting your non deductible debt is how it should be. As long as theres no borrowed money in the offset as well.
     
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  3. Ed Barton

    Ed Barton Well-Known Member

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    Overthinking
     
  4. larrylarry

    larrylarry Well-Known Member

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  5. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    no tax issues as rent is not borrowed money, but cash. No need to segregate it.

    ideally all cash would go into the offset account on the main residence. Save more non deductible interest.
     
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  6. Paul@PFI

    Paul@PFI Tax Accounting + SMSF Business Member

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    1. Best result is all rental income credits offset to own home loan
    2. If no own home loan then offset to a IP

    Alternatively use of offset $$$ against own home to paydown credit card (if have one) once and for all BUT ...Don't reuse it to pay IP expenses as its the worst form of blended loan.
     
  7. Simon Hampel

    Simon Hampel Founder Staff Member

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    Of course, if you hold your properties in a different structure (eg trust or company, etc), then there might be implications here - but not otherwise.
     
  8. Bombers86

    Bombers86 Member

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    Sweet, thanks all! I was even going back through Somersoft to find answers haha. Good old overthinking, gets me everytime! I'm hoping overthinking is just natural though the more IP's you accumulate (??), just want to keep reviewing the structures I have in place.

    Paul, you mentioned to not pay IP expenses from the offset account I have all my rent going into - but how else would I pay for it when that's where all my money is?
     
  9. See Change

    See Change Timing Lord Premium Member

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    Re sims comment .

    We have multiple properties in different entities . It can be an accounting nightmare to track everything , so each trust has its own account . Some banks will charge a monthly account fee , so check around if that's what you were doing .

    We've just bought some through first mac that came with an account we didn't know about which is free . Needless to say , we're closing the CBA accounts which have a monthly fee and changing all the rent , interest over to the first Mac accounts .

    Cliff
     
  10. Simon Hampel

    Simon Hampel Founder Staff Member

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    Some people would advise to keep your cash (or at least a portion of it) with a separate institution to your loans because of "all-monies" clauses in case the proverbial hits the proverbial (eg a run on the bank causing them to call in loans at short notice).

    You don't want a lender calling in your loan at short notice and then using all of your cash to pay down the debt - you want to be in control of that process as much as you can.

    Obviously offset accounts require you to have an account with the same institution - so it's kind of unavoidable, and having multiple lenders across multiple entities would also help avoid the worst case scenario.

    If you have multiple properties with different lenders, using multiple offset accounts might help reduce some of this risk.

    Anyway - just something for people to think about when structuring their finances.
     
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  11. Jamie Moore

    Jamie Moore MORTGAGE BROKER - AUSTRALIA WIDE Business Member

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    It's what I've always done - all rental income directed to PPOR offset.

    Use a credit card with a rewards system to pay for all ongoing living expenses. Clear the credit card once a month with offset funds. Enjoy cocktails on a beach somewhere once every year or two with credit card points :)

    Cheers

    Jamie
     
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  12. See Change

    See Change Timing Lord Premium Member

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    Or a couple of gold class tickets once a month , or both ...

    Cliff
     
  13. Bombers86

    Bombers86 Member

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    Thank you everyone - all awesome advice as usual :)
     
  14. JacM

    JacM VIC Buyer's Agent Business Member

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    If the PPOR is paid off, there is a decision to be made re which IP offset(s) to store rents in. A contributing factor might be which one has the highest interest rate. Another contributing factor might be that an IP that is going to be sold and thus have CGT payable may benefit from demonstrating mortgage interest burden to cancel out some "gain". Meanwhile another property that is not to be sold enjoys benefits of cash in an offset account reducing mortgage interest.
     
  15. martino

    martino Member

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    I came here to ask the same question (can rent be paid into PPOR offset without implications) so great this has been answered, but am curious to the answer on the above.

    Can I assume it is ok to pay the IP mortgage and any associated costs (rates, bills etc) out of the PPOR offset if that is where the rent is being paid to?
     
  16. MikeLivingTheDream

    MikeLivingTheDream BCOM MCOM MTAX CPA CTA Registered Tax Agent

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    If you are taking money out of the offset account attached to your PPOR then the overall amount owing on the PPOR would increase. Interest on your PPOR would not be deductible so this wouldnt be an effective tax strategy.
     
  17. Gockie

    Gockie I'm an ISTP-A female, so I might be a bit quirky! Premium Member

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    Hi Jacqui, I'm not sure I understand this as you still have to pay tax anyway?
     
  18. Scott No Mates

    Scott No Mates Well-Known Member

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    Excuse the naive question. If you don't take the payments from the account which holds the income (assuming that both rent and salary are paid into the offset account) where are you suggesting that the repayment comes from eg LOC?
     
  19. JacM

    JacM VIC Buyer's Agent Business Member

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    Hi Gockie

    You pay tax on "income minus deductible expenditure", yes. Mortgage interest is a deductible expense. However dollar for dollar you will be better off paying tax on a paid-off mortgage than you would be paying interest on a mortgage. The ATO website seems to be down at the moment so I've gotten some estimates from another online calculator but this should give you sufficient visual to get the idea. As you can see, if you have paid off a mortgage or have fully offset the mortgage with funds in an offset account, yes you pay more tax but you are also substantially better off in the "net position" column (ie what you get to keep, after taxes).

    Hope it helps! Let me know if it does as they is a key point people often have trouble getting their heads around, so we're always looking at different ways to communicate it to get the message across.

    with and without.jpg
     
  20. martino

    martino Member

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    This is my question also.

    In my case both the IP rent and my salary would be paid into the PPOR offset.