IP loan with Redraw and Offset

Discussion in 'Accounting & Tax' started by Charch, 21st Mar, 2017.

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  1. Charch

    Charch Well-Known Member

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    Hi All.

    I have a new IP interest only loan with both redraw and offset facilities.

    I initially transferred surplus funds into the loan redraw then realised I should of left it within the linked offset account.

    If I transfer the funds back out to the linked offset account will there be any tax implications ?

    Thanks in advance !
     
    Last edited: 21st Mar, 2017
  2. Jess Peletier

    Jess Peletier Mortgage Broker & Finance Strategy, Aus Wide! Business Member

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    It will depend what you do with the funds from the offset account. It's all about the purpose. If you spend it on cake, it's not deductible. If you spend it on a new IP, it is :)
     
  3. Terry_w

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

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    Yes consequences
     
  4. Charch

    Charch Well-Known Member

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    Thanks for confirming Jess, and if I just leave the funds there I can still claim the interest on the reduced loan amount even though the funds went from redraw to offset?
     
  5. Charch

    Charch Well-Known Member

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    By that do you mean it will this be flagged with the tax man? Appreciate if you could elaborate for me.
     
    Last edited: 21st Mar, 2017
  6. Jess Peletier

    Jess Peletier Mortgage Broker & Finance Strategy, Aus Wide! Business Member

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    The interest amount should not change, so my understanding is that this is fine.
     
  7. Terry_w

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

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    See my tax tip 1.

    If you redraw from a loan it will be new borrowings. These funds then 0arked in offset will mean no investment use so you will have created a mixed purpose loan. 2 problems now.
     
  8. Terry_w

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

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    You have just paid down a loan so the deductibility won't change but the interest incurred is less.
     
  9. Charch

    Charch Well-Known Member

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    Thanks Terry.

    The funds are parked in a offset "linked" to the IP's investment loan, so isn't that still considered for investment use?

    With regards to the 2 problems. Is there anyway of rectifying this?
     
  10. Terry_w

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

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    See tax tip 1
     
  11. Anthony Brew

    Anthony Brew Well-Known Member

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    Sorry if this is a silly question, but what would be a reason to have a redraw as well as offset instead of just an offset?
     
  12. Terry_w

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

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    On a main residence loan it would be to debt recycle
     
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  13. Greyghost

    Greyghost Well-Known Member

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    Exactly. No reason.
    Bells and whistles.
    Some brokers include it like they are giving you free "optional extras" like reverse parking cameras on a car.

    It is part of understanding your strategy and directing cash flow accordingly.

    Pay off PPR? Does PPR utilise offset? Are all funds being credited and debited from PPR offset? Use of credit card as extension of this.

    Some like the OCD nature of:
    Rent into IP offset, IP loan out of IP offset

    Everything else into and out of PPR offset..

    Depends on your needs, ability to maintain a funding structure and if you even care lol..
     
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  14. Terry_w

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

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    You should not be paying extra into a loan. Other than the main residence loan. If serviceability is an issue you would need to pay this off asap and debt recycle so redraw and an offset would be needed for this otherwise you would need new loan application everytime you wanted to borrow more money.

    Most variable loans other redraw can't think of one that doesn't.
     
  15. Charch

    Charch Well-Known Member

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    So should I transfer the funds back from the offset to the redraw? Just getting really confused the more I read now.
     
  16. giraffez

    giraffez Well-Known Member

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    I'm a newbie to all this. But if there is one thing i learnt today it is that putting extra money into your loan above your minimum repayment amount is bad. The same effect can be achieved by putting money into an offset account which allow you tax deductions if it is an investment property.

    Because when you redraw from a loan account, you are effectively accessing borrowings the loan is now a mixed purpose loan and hence means that the amount you are redrawing is no longer tax deductible.

    Yes I'm as shocked as you are!! :confused:

    I asked something similar today. Apparently you should split your loan if you want to access your redraw. ie. Take new loan of $0 with $X redraw. By doing this, you are making things black and white so you are not mixing the purpose of the redraw. My bank manager gawked at this when i requested this today... so be prepared to get some negative reaction when you do it.

    I only learnt of this redraw consequence today via Terry's tax tips! Never would I have thought of this implication in a million years. I always thought i was doing the right thing by paying my loan off more quickly!

    Terry you will be pleased to know that the first thing i did when i got home was to change my loan repayment to the minimum amount! No more extra payments from this point forward.

    You taught me well! :)
     
  17. Terry_w

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

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    Not if the funds in the offset have been redrawn as it is a mixed loan and repaying into the loan will further mix it.
     
  18. Charch

    Charch Well-Known Member

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    Funds in the linked offset remain the same amount and have not been redrawn.
     
  19. Terry_w

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

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    Any deposit made into the offset ever?
     
  20. Charch

    Charch Well-Known Member

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    A months worth of rent has been deposited into the linked offset account .