Blending a Blended Split Loan Using a Offset

Discussion in 'Accounting & Tax' started by Paul@PAS, 14th May, 2018.

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  1. Paul@PAS

    Paul@PAS Tax, Accounting + SMSF + All things Property Tax Business Plus Member

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    I have found yet another mistake that occurs when a blended loan occurs. A blended offset problem.

    Taxpayer has a loan and then seeks a equity release. Bank approves a new increase and taxpayers thinks that he can identify the new's old portion of the loan. The new equity is credited to an offset.

    Problem is the interest for the new purpose and the existing loan purpose are blended. So despite the new funds being credited to the offset the portion of the loan balance is not as clear cut.

    example

    Existing Loan $100K
    New Loan $100K
    Loan $100K becomes $200K with a $100K offset.

    However the Offset Account offsets all the existing loan and the new loan. So Interest is incurred on $100K but of this only 50% has a deductible purpose relating to the existing loan.

    The taxpayer has REDUCED deductions. It isnt possible to specify the proportion of the offset that relates to the new loan or the existing
     
  2. Terry_w

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

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    And then they often do 2 more things to blend the blended blend further

    Either

    Deposit cash in the offset

    And/or

    Pay the $100k back into the loan
     
    Paul@PAS likes this.

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