How to avoid issue similar to Domjan's case

I have found the tax tip #1 from Terry about parking the redraw money into the offset account. I wonder if there is a way to prevent the redraw to be treated as non-deductible?

I am having a loan with bank A for investment property. And I want to redraw about $120k to settle a new investment property. BUT, I would like to get the 2nd loan with bank B (different bank).

Bank A told me that I cannot redraw and put the money directly to bank B. So that money has to park in one of my everyday-accounts and I have to make a transfer to an account to bank B.

Is there any way to move that money without losing the tax deduct-ability of that $120k?

 

Nobody says redraws are non-deductible. It is the USE of all borrowed money that determines if a deduction is permitted. The other issue concern tainting the redrawn funds so that it is a blended loan this reduces deductions over time.

The $120K must reasonably be evident as being used to pay for a new IP for example. You could move the redrawn funds to an offset with no other $$$. Or to a savings account with no other $$$ in it and then when its paid to the lawyers etc FROM THAT DATE (?) the interest should still be deductible. It may be as simple as not mixing the loan $$$ with any other money.

Or the Bank could give you a LOC or undrawn limit which you later draw down. Some loan accounts have a redraw facility. or on day 1 bank lends you $120K they expect it to be advanced. Then the next day you can repay that loan and the account limit remains available. A few weeks later you draw it down. Your broker can address these issues as each lender may have different rules. You dont want to repay a loan and end the loan....But redraws may assist this.

There was a concerning media article this week about a major bank seeking to CLEAR all undrawn redraw balances in the next month so take care

 

All explained in my tax tip 1
Tax Tip 1: Parking borrowed money in an offset account Tax Tip 1: Parking borrowed money in an offset account

 

This doesn't sound good, do you have a link?

 

SMH article - "withdraw money from your redraw now"

 

If I am not mistaken, if the account balance is $0.00 before I redraw, it should be fine.

TerryW, PaulPFI, what if I cannot use all the $120k for settlement? After paying stamp duty, solicitor, the remaining deposit, bank fees or bank cheques, etc. Let's say if it remains $1,xxx after the settlement. Should I return that fund back to loan in bank A? Will that $1,xxx causes mixed loan? But I will try to make the redraw as close as the required fund for settlement. But just in case.

 

What does your tax adviser say?

 

She said wait until getting the final figure for the settlement, then do the redraw to that amount.

 

That might be a good approach

 

Plan B can be to repay the loan back to that value if the drawn funds are excessive.

 

There is a reason I want to redraw the fund from loan in bank A to cover the settlement cost on loan B with just a little extra (few hundreds) to cover in case when they want to issue additional cheques or whatever fee they need.

That why even I get the settlement figure from my solicitor, I still want to redraw a little bit more. (say extra $500). Does this make sense?

Someone told me why bother moving the fund back to the loan in Bank A. If the fund is only $500, since that money is in bank B then I can just put the money in the loan B. As long as I don't use that left over money for personal use.

I checked back with my tax consultant, still getting annoyed, since the advice is the make the exact redraw to the settlement figure.

 

Why get annoyed. You can either follow the advice or disregard it.

 

You're absolutely right, I should trust the professional anyway.