Bank account set for first IP

Did the offset, at any time, contain non-borrowed and borrowed money? If so the loan is mixed purpose. If not then you might have a case to argue no mixing occurred. I can't tell from the original post.

 

Terry you are over complicating the scenario. The equity loan funds were flushed into the PPR Offset and the next day, he moved it to the Equity loan offset. All he has to do is not claim the interest for that 1 day as a deduction.

 

Are you qualified and licensed to advise on tax?

 

I am not licensed Terry. But if you read what he has posted properly, it is clearly a misdirection of the equity funds being deposited into his offset for PPOR. If he transfers that money the next day in the offset for equity loan, he only accrues interest for 1 day which he does not claim. Since the funds sat in his PPOR offset, there is no issue for tax deductions. When he utilised the funds from the offset against the equity loan for investment purposes, the interest that accrues will then be deductible if used for the purchase on an income producing asset.

 

Have you read the Domjan case?

As a tax lawyer, qualified and licenced, I must disagree with your assessment.

 

The Domjan case is not specific to this case as he hadn't purchased the investment at the time of the funds being made available. As the funds were transferred the next day from the offset in the PPOR to equity loan, as long as he doesn't claim the interest for the 1 day from the equity loan he will be fine.

You're making a mountain out of a molehill and if you look at the findings of Domjan, it has nothing to do with this scenario.

 

I say you are wrong.

 

Do you think is it better to get a private ruling from ATO regarding this?

 

No

 

Hi Terry,

Why do you think it is a bad idea?

 

The answer is 100% clear cut.

What question would you ask?

 

Just to explain what has happened and suggest how we'll be handling it. Therefore, it is clear now how to handle it and hopefully there won't be issues in the future.

Unless there is a disadvantage, isn't it better to get it in writing from ATO?

 

they don't give answers like that. You would have to explain your situation and ask a legal question such as 'would the interest be deductible in full under s8-1.'

They will then say yes or no and supply an explanation.

The trouble is if you get a no, if you then claim a deduction they will impose higher penalties.

its like asking your mum can i eat the chocolate cake in the fridge? If she said no and you eat it you would be in bigger trouble then if you just ate it without asking

 

My understanding is that the funds must be paid directly from the loan itself. Not the offset.

Especially not with any detours like the OP has; Loan > PPOR offset > loan offset > payment.

My bank put the funds of my equity release into its associated offset. So, I placed the funds back into the loan itself, and paid the expenses directly from the loan account.

 

Hi Terry,

I saw this rulining the ATO website. It says that if you withdraw funds from offset (even for non income producing purposes ) the interest is deductable.

What am i missing?

Question 3 of following link.

Legal Database

 

are the offset funds borrowed money or cash?

 

This might be relevant:
Tax Tip 82: Taking money from an offset account on an IP and Claiming Interest Tax Tip 82: Taking money from an offset account on an IP and Claiming Interest

 

offset has borrowed money

 

can you quote the relevant sections of the ruling?

 

taxpayer with an acceptable loan account offset arrangement with dual accounts is entitled to claim a deduction for the full amount of interest incurred on the loan account whilst the loan is used wholly for income producing purposes.

This will remain the case even if funds are withdrawn from the deposit account and used for non-income producing purposes.