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How to un-mix monies from offset account?

Discussion in 'Accounting & Tax' started by Ravi, 19th Feb, 2016.

  1. Ravi

    Ravi Active Member

    Joined:
    31st Jul, 2015
    Posts:
    40
    Location:
    Sydney
    I have a loan account (created using equity from ppor) and an offset attached to it.
    This offset account have only borrowed money.


    Recently I paid initial deposit of 2 IPs from this offset account. Though the interest is fully tax deductible, the interest will be a mix of 2 IPs.

    Initially I had this:
    Investment loan = 118k (equity from ppor)
    investment offset = 118k

    Recently I settled two lands and paid 50k + 45k = 96k towards initial deposit of two lands.

    Now:
    Investment loan = 118k
    investment offset = 22k

    Problem with this approach are -
    1. during tax time the interest will have to be apportioned.
    2. bigger problem when I sell one property in future.
    3. Risk of contaminating this offset with non-borrowed money in long term.

    My questions: Is there any other problem other then 3 listed above?
    How can I rectify my mistake and un-mix two loans?

    Thanks for help.

    Regards
    Ravi
     
    Perthguy likes this.
  2. Paul@PFI

    Paul@PFI Tax Accounting + SMSF Business Member

    Joined:
    18th Jun, 2015
    Posts:
    2,358
    Location:
    Sydney
    So you have three uses for the borrowings ?
    1. $50K Deposit land
    2. $45K Deposit Land
    3. $22K - Unused borrowing in offset

    Why not have a loan split on that basis ? Of course if you used 3. for say stamp duty for each block it may change numbers so give thought to the final loan amounts before splitting.
     
    Jess Peletier likes this.
  3. Ravi

    Ravi Active Member

    Joined:
    31st Jul, 2015
    Posts:
    40
    Location:
    Sydney
    So does it mean after the split I can merge two loans of each land into one loan for each?
    Before split:
    Investment loan: 118k (46+50+22)
    land 1 loan : 200k
    land 2 loan: 180k

    After split:
    Investment loan: 22k
    initial depo 1 loan: 50k
    initial depo 2 loan: 46k
    land 1 loan : 200k
    land 2 loan: 180k

    Then merge:
    investment loan: 20k
    land 1 loan: 250k
    land 2 loan: 226k

    this way both lands loans are 100% borrowings.( i.e loan = purchase price)

    Q: is it possible to do above?
    Q: Is there a cross collatralization with ppor?
     
  4. Ravi

    Ravi Active Member

    Joined:
    31st Jul, 2015
    Posts:
    40
    Location:
    Sydney
    So does it mean after the split I can merge two loans of each land into one loan for each?
    Before split:
    Investment loan: 118k (46+50+22)
    land 1 loan : 200k
    land 2 loan: 180k

    After split:
    Investment loan: 22k
    initial depo 1 loan: 50k
    initial depo 2 loan: 46k
    land 1 loan : 200k
    land 2 loan: 180k

    Then merge:
    investment loan: 20k
    land 1 loan: 250k
    land 2 loan: 226k

    this way both lands loans are 100% borrowings.( i.e loan = purchase price)

    Q: is it possible to do above?
    Q: Is there a cross collatralization with ppor?
     
  5. USC

    USC Active Member

    Joined:
    2nd Jan, 2016
    Posts:
    36
    Location:
    Melbourne
    Yes you can merge the loans so that each investment has its own complete loan (rather than multiple little ones). I agree, much neater this way and less account keeping fees if needing to pay for each loan.

    But if you do it now you will be cross coll with PPOR.

    Why don't you keep all the loans separate, then merge when you have had enough capital growth on the investments at 80% LVR and remove PPOR as the security.