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Big Problem- Can't draw direct from loan acc for deposit

Discussion in 'Accounting & Tax' started by Otie, 6th Jul, 2016.

  1. Otie

    Otie Well-Known Member

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    I have a huge problem.
    I set up my loan for the first IP deposit (we are yet to make a purchase) as IO. It is a separate split that was made using the equity from our PPOR.
    The loan funds were paid from the lender into my personal bank account, (they wouldn't leave them in the loan account at settlement). I transferred all of the funds straight back into the loan account except for 1k to ensure it would stay open.
    I was assured verbally that the loan account could be accessed using redraw or pay anyone, and I was told there was no pay anyone limit.
    I have now been informed that there is a pay anyone daily limit of 5k, and that the redraw can only be used to redraw funds from the loan account to my linked personal bank account. I cannot change the linked bank to anyone but an account in my name (i.e. can't change it to the payee I want to pay). I have requested a cheque book, and asked if they can make out a bank cheque. Apparently the lender cannot provide me with a cheque book or a bank cheque as they are not a bank, only a lender?
    I am at a complete loss as to how I should pay the deposit for the IP. The only option available seems to be to redraw the funds to my normal bank account and pay from there however I believe I then lose all deductibility of the interest on that loan account.
    Is it possible to do this and still make it deductible if I open a new bank account which is solely for this use so I can show a clear paper trail?

    I do not know of how else this can work- Does anyone have any ideas?

    I think we will most likely be buying at auction, so will need the 10% on auction day.
    We have an auction coming up on this Saturday that we were really keen on, but I don't know how to go about paying the deposit if we were to make a bid.
     
  2. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    sounds like NAB!

    The band aid solution is to draw into an empty offset account and pay from there. I can't guarantee the interest will be deductible but it probably will be. see \
    Tax Tip 1: Parking borrowed money in an offset account Tax Tip 1: Parking borrowed money in an offset account

    You should also be able to get a special increase on the transfer limit to allow all the transfer to happen at once.

    Best to use a LOC to avoid situations like this.
     
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  3. Otie

    Otie Well-Known Member

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    I have one offset which is attached the the PPOR. I have not used it at all yet. Should I use that or just open a completely new bank account for the transaction. Lender only allowed me to have one offset in total, not one per split as I would have liked.
     
  4. Paul@PFI

    Paul@PFI Tax Accounting + SMSF Business Member

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    A debit card bypasses the daily limit if its paid as a credit transaction. Of course the debit card cant be linked to a loan - Sometimes an offset. You never want loan proceeds paid to a savings account unless it has zero other money or other use.
     
  5. Otie

    Otie Well-Known Member

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    Okay so if I open a brand new savings account, only for this money, and pay with credit function of the visa debit, then close the account and keep the records of it, would that be the best way, or is it better to just get a bank check drawn from the funds in this savings account?
     
  6. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    The best way is to set up a LOC and pay directly from the loan account.

    If you don't want to do this, for whatever reason, then take the risk of having the money detour via an offset account.

    If you don't want to use an offset then take the further risk of using a savings account. This extra risk is because you will be borrowing at say 5% and will be getting about 1% interest on the savings account - so it is an uncommercial transaction.
     
  7. Paul@PFI

    Paul@PFI Tax Accounting + SMSF Business Member

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    I dont think the commerciality is an issue. If you pay from your offset to your solicitor who holds the funds for three days in trust and pays zero interest that is no different. The nexus to the use of the borrowed money is the critical element. Certainly you dont want to hold a large sum in savings for a long period and then want to claim the interest incurred throughout that period. The offset is a far better proposition.

    Or ensuring that the loan has a redraw. If that happens you can rebank it and then draw when its needed. Lenders have this thing about ensuring a new loan is "drawn" and not merely an undrawn facility. Something to do with mortgage terms that refer to "an advance" I believe.
     
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  8. Otie

    Otie Well-Known Member

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    If I refinance these funds in a year or so, can I just forgo the deductibility on these funds for this year whilst with this lender and then once with a new lender who allows paying from the loan account, can it then become deductable from then on?
     
  9. Paul@PFI

    Paul@PFI Tax Accounting + SMSF Business Member

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    The USE of the borrowed funds for a deductible purposes creates the deductibility. Refinancing just changes who the lender is from an originally deductible amount to the same sum for a new lender.
     
  10. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    I don't understand this above. Can you elaborate?
     
  11. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    I don't think it would be an issue if just a few days but the longer it drags out the more likely that it would be.

    E.g $100,000 at 5% is $5000 interest per year.
    If X borrowed $100,000 and parked it in an offset for a year there is no interest, but if X parked it in a savings account for a year then they may earn $1000 but lose $5000 - a loss of $4,000 which would have tax implications.

    No one in their right mind would do it for this long, but the same principles could apply for a shorter period.
     
  12. mikey7

    mikey7 Well-Known Member

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    Hmm.. interesting.
    Sorry to somewhat hijack.. but which bank are you with?

    I'm about to refi with Westpac for split loans for an IP.. I really hope I won't come across this same issue? Does anyone know with Westpac?
    I assume the best practice is to get a cheque (or two) made directly from this split loan?

    1x cheque made for 0.25% of purchase price when signing contract
    1x cheque made for remaining (9.75% - to make 10%) after cooling off period (inspections etc)

    Is this correct? I remember paying the 0.25% for my PPOR via my debit card to the REA, and I don't recall how I paid the remaining 9.75%.. i think it was by cheque to the REA.

    I hope to go through these processes in the coming weeks (for an IP), so need to make sure I am ready and on the right track.
     
    Last edited: 8th Jul, 2016
  13. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Westpac are excellent. You can pay down a loan to nil without closing it, the loans can be split easily and you can pay from the loan account.

    Just pay directly from the loan account.
     
  14. Otie

    Otie Well-Known Member

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    I'm sure you will be okay with Westpac. My issue is because my bank is a non bank lender- pepper.
     
  15. Otie

    Otie Well-Known Member

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    Cant use the offset as this also has a daily pay anyone limit of 5k,
     
  16. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    This can probably be changed or a bank cheque used instead
     
  17. Otie

    Otie Well-Known Member

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    T
    They have said since they're not a bank, they can't provide a bank cheque or cheque book. Complete nightmare
     
  18. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Your paying the price for choosing one of these lenders now!
     
  19. Otie

    Otie Well-Known Member

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    Sure am. I wanted to get my foot in the door. Agents allowed me to do 5k a day over three days for the 10% deposit. So 15k of the 39k interest will only be deductable. Had hoped to pay into a c/card but they do t take c/cards.
    Guess I have no choice but to redraw the rest to bank ACC and transfer remaining 24k.
    My first IP so I guess this is part of learning the game. Either way I'm glad to get in and not put it off another year or never take the plunge. Either way I see this journey will have more positives for my future than negatives.
     
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  20. sanj

    sanj Well-Known Member

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    Why would only 15k be deductible? as stated above the use of funds is what determines deductibility not rhe source.

    sounds like you've got a decent amount of liquid savings, make an appointment to go see one of these guys and get not only specific advice but a better understanding too