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(Deductible Interest for IP) Money from offset account used for IP

Discussion in 'Property Finance' started by salz, 30th Jul, 2015.

  1. salz

    salz Active Member

    Joined:
    30th Jul, 2015
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    Canberra
    Hi All,

    I have been following and learning lot about the property investment in this forum recently. I wish I would have looked into this forum before.

    Anyways, I am in a fix now as I paid money from my offset account for an IP, instead of redraw/splitting my PPOR loan to show deductible interest used for Investment purpose.
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    I owned PPOR and it was mortgaged with Bank A with offset acc. I had a decent saving 150K put into offset acc and at the same time I had ard 100k equity sitting in my PPOR.

    In Aug Last year, I paid 60k initial deposit to an agent for my 1st IP from my offset account and at same time applied for refinancing PPOR to get equity and IP loan from another Bank B2.

    From Bank A offset account I took another 89k (stamp duty plus another 10% for IP) and transferred to conveyancer for settlement of IP. In the same week, my refinance for PPOR settled and Bank deposit the equity 100K in new offset account and then in next 3 days we settled the IP with the buyer.

    Is it possible that I can claim 150k used for investment purpose as deductible interest (used for IP) as it was my original intent to refinance my PPOR and use equity for IP? Any idea on how can I fix the situation? I had a quick chat with tax agent and acc to him this should not be Issue.

    I am meeting accountant very soon but need advice from experts here before formulating any plan.

    Thanks
     
  2. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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  3. chylld

    chylld Well-Known Member

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    As Terry said - the $149k deposit + stamp duty that you paid is already done, so you can't transfer money back into your offset from a LOC and then claim a tax deduction on that LOC's interest.

    Also, you mentioned "new offset account" for your $100k equity release... is this new offset still with Bank A, offsetting your PPOR loan? If that's the case, it would be very messy (if not impossible) to claim any tax deduction as you would essentially be trying to apportion your PPOR's "extra" loan interest (as a result of not having $x in your new offset) as an income-producing borrowing.

    The correct procedure would have been to release the $100k equity in a new LOC and then pay the IP expenses directly out of that LOC (and NOT via any offset / personal cash account.)

    Side note: I've known of a few people getting a new loan and offset account rather than a LOC. Providing that the funds in the offset account aren't used for any non-IP-related expenses, is this still functionally the same?
     
  4. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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