How does take money from loan offset to compensate repayment affect tax

I have the following scenario.

I applied for a loan, bank processed it and transfer the money to the offset account of that loan. It took me 3 months to find a property and settled it using the money from that offset account.

During those 3 months while I was searching for a property, bank kept on charging money from my personal account as monthly instalments for that loan. In order to keep my cash-flow going, I have transferred money from the loan offset to my personal account and no bank interest incurred during this period as the offset account has the money equal to the loan balance.

Once I found the property and used money from the loan offset to pay for it, I have stopped transferring money from offset to my personal account. Therefore, the bank interest incurred in that loan is 100% used for the investment purposes.

Can this cause any issues when it come to taxation?

 

Yes, you have a mixed loan. See my tax tips.

 

Hi Terry,

I did read most of your posts, Thanks for posting them.

The confusing bit here is that there were NO interest incurred due these transfers and wonder why this can cause a tax issue

 

Sounds like you have borrowed money and then mixed it with non-borrowed money.

You should seek specific tax advice as there may be more to it.

 

It sounds like the monthly loan repayments have gone against the wrong account. The monthly repayments would ordinarily go against the offset but they went against your personal account?

 

I think the problem was bank processed the loan too soon or I got the wrong type of loan. I should have gone for a LOC.

 

Or set up a fresh bank account with no direct debits coming out and no money sitting in it