Bank Cheque Question

Discussion in 'Loans & Mortgage Brokers' started by pommy, 5th Apr, 2017.

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  1. pommy

    pommy Well-Known Member

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    Hi, this is a question regarding bank cheques and deductability.

    Say I arrange a bank cheque for the deposit for bidding at an auction. With this money coming from a separate brand new loan account. Then I don't win the property and the funds are returned to that account. Does this impact deductability of that loan in anyway?

    I presume the best bet in most circumstances is to negotiate some other payment form such as a small cash deposit followed by a transfer, or a personal cheque?

    (I did a quick search on PropertyChat and didn't see this specific topic mention, but apologies if it has been answered before.)
     
  2. chylld

    chylld Well-Known Member

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    Assuming that the bank cheque is returned to the loan a day or more after it was drawn, it will incur extra interest and as it was not used for any income-producing purpose, that interest will not be tax deductible.

    Upon buying the cheque back I would think that the undeductible portion of the loan would be wiped out, however there's a chance that the amount will come proportionately off all existing portions of the loan.

    A more elegant solution would be to use either a personal cheque (from a chequebook) or a temporary(?) cheque which you can get from one of your bank's branches. This way the money will not be drawn from your account unless you win.
     
  3. Peter_Tersteeg

    Peter_Tersteeg Finance broker and strategist Business Member

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    There was a whole thread on this recently, there's no need to show up at an auction with a cheque.

    Using your phone banking, transfer a nominal amount on the day (say $1000) to the agents trust account. On Monday you follow it up with a bank cheque for the balance.

    Depending on how you do it, you might miss out the deductions for the $1k, that's probably about $1 per month for most people.
     
  4. dabbler

    dabbler Well-Known Member

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    I would not worry about it, just do not claim any interest, the loan is still good.

    An example is say you took a loan split from your home for 60k for a car. 5 years later you have paid the loan back on that split, you could then use that loan and re draw for an IP deposit let's say, the loan would then be deductible.
     
  5. chylld

    chylld Well-Known Member

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    I misread the OP the first time... as dabbler said, for a brand new loan account, simply don't claim any deductions on whatever interest is incurred. Still, there are options of not accruing any unnecessary interest in the first place, see posts 2 and 3 above.
     
  6. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Plus Member

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    Any interest incurred won't be deductible because there is no income associated with the borrowings.

    You might then have a largely undrawn loan with say $50 outstanding. The simple thing to do would be to pay that off with cash (as long as it doesn't close the loan account).

    Then it will be a clean loan with no contamination and can be used to invest.

    This might be covered in part here:
    Tax Tip 6: Using Redraw to invest https://propertychat.com.au/community/threads/tax-tip-6-using-redraw-to-invest.1837/
     
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  7. chylld

    chylld Well-Known Member

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    I read somewhere here last year that you leave $10 in an SVR to keep it open, and then when you need to invest say $50k you redraw $50k and then on the same day, deposit $10. Banks are likely to process the credit first which makes your statement look like you fully reset it to $0 and the purpose is 100% investing.

    Is this necessary? Or would the $10 residual balance at time of redraw be deemed insignificant for tax deduction purposes?
     
  8. BennEznElle

    BennEznElle Well-Known Member

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    The hard line technical answer is that its a contaminated loan. However from a practical view, I and I'm sure many accountants and probably including the ATO would not be concerned about it. Given that figures get rounded to a whole dollar in the tax return any way, there would be no difference in this situation.
     
  9. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Plus Member

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    Interesting.
    I wouldn't worry too much because $10 out of a $50k loan is 0.02%. You would still be able to claim 99.98% of the interest
     
  10. Perthguy

    Perthguy Well-Known Member

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    You would need to confirm that with your lender. For mine, its $1.
     
  11. chylld

    chylld Well-Known Member

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    For CBA it's apparently $1, however I'd like to play it a bit safe as the interest on $10 is already negligible.
     
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  12. Peter_Tersteeg

    Peter_Tersteeg Finance broker and strategist Business Member

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    I'd suggest leaving at least $300. I've heard of lenders shutting accounts with a lot more than $10 owing.
     
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  13. pommy

    pommy Well-Known Member

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    Hi

    Just chiming in to say a late thanks for the replies. First chance I have had to get back on and have a look.

    I have ordered a chequebook for the account and will just arrange it to avoid using a bank cheque if possible. It sounds like it wouldn't be the end of the world if I had to though, I just don't claim the interest as a result of that.

    I already have a small draw down for the fees in setting up the loan. So might be good to zero (or close to zero) this off in advance of using the money ... I will speak to the bank about how low it can go without closing.