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is money withdrawn from home loan offset acc to buy investment property tax deductible?

Discussion in 'Accounting & Tax' started by Ravi, 31st Jul, 2015.

  1. Ravi

    Ravi Active Member

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    Hello,

    I have approx $200k in offset account linked to my home loan. I am planning to buy an investment property using $50k from offset account towards 20% payment.

    As a result it will increase interest paid for my home loan (by approx $2125 pa.).

    My question - is this interest tax deductible?
     
  2. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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  3. Paul@PFI

    Paul@PFI Tax Accounting + SMSF Business Member

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    Drawing money from an offset isn't borrowing. Its savings. But it will increase the interest on your home. But its not deductible.

    If you loan has a redraw facility you can credit the loan with the offset and redraw a new loan amount. Problem is that it blends two different purposes and that's a poor thing to do.

    Better to see if bank will allow loan to be credited with offset, then split so a new loan account for new draw down is available. Use draw down for new IP deposit and yes it is deductible.
    Speak to your broker.
     
  4. srirang

    srirang Well-Known Member

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    Yeah. Definitely agree. You've received very good advise that will save you money.

    Your broker should be telling you this. If he isn't, there are plenty of good brokers on the forum that can help you.
     
  5. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Its not a brokers place to give tax advice. Many do and the advice is often wrong so all these sorts of questions should be asked to a tax agent or lawyer.
     
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  6. Jamie Moore

    Jamie Moore MORTGAGE BROKER - AUSTRALIA WIDE Business Member

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    Usually best to do what Paul mentioned - inject the cash from offset into the loan and reborrow the funds as a new loan split. Make sure your lender will allow this before proceeding though.

    I'm not an accountant though - talk to peeps like Paul about it.

    Cheers

    Jamie
     
  7. Blacky

    Blacky Well-Known Member

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    Should also point out that the funds from the split, should not be transferred to the offset and then transferred for the purchase. It will mix the funds in the offset.

    The new split should be transferred from the loan to the settlement agent directly (or REA trust acct for the deposit).

    Blacky
     
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  8. Logan

    Logan Well-Known Member

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    Just picking up this thread again. This maybe simple but just wanted to check. If I transfer funds from my portfolio loan to my offerset (PPOR) to be used as a deposit is it still deductible ? does it matter that it goes through my offset on the way to the vendor ?
     
  9. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Don't do that as you could destroy deductibility. See


    Tax Tip 1: Parking borrowed money in an offset account

    https://propertychat.com.au/communi...ing-borrowed-money-in-an-offset-account.1313/
     
  10. Logan

    Logan Well-Known Member

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    Thanks Terry. So should I pay the deposit straight from the portfolio loan ?
     
  11. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Yes.

    You will be borrowing to pay and avoiding any detours which could result in contaminating borrowed money.
     
  12. newbie property

    newbie property Active Member

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    Hi Terry,

    does the same theory applies to when I use the cash in offset of an IP loan as the deposit to buy my own PPOR? once the cash is taken out, the interest on IP loan will be higher, I'm guessing the interest is not related to IP, hence it's not deductible?

    Thank you!
     
  13. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    No, it would be deductible. Interest on an investment loan that relates to the purchase of the investment will still be deductible if you have never paid into that loan. It goes up when you withdraw your cash out of the offset, but because you are not withdrawing from the loan there are no deductibility issues.
     
  14. newbie property

    newbie property Active Member

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    Thank you for your advice, Terry!

    What about using redraw from an IP loan, use the redrawed money as the deposit for PPOR? Will this make the IP loan become a mixed purpose of loan?

    Thanks again!
     
  15. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Yes. It will be a mixed purpose as one loan used for 2 things. Interest won't be deductible on the part used for the main residence.
     
  16. Baker

    Baker Well-Known Member

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    Similar question, slight variation:

    I have a freehold property (not PPOR), that now has a line of credit established against it in an offset account. If I use that money for deposits on IPs, is the interest applied deductible?
     
  17. Jess Peletier

    Jess Peletier Mortgage Broker - Australia Wide Business Member

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    Yes - but make sure that the LOC money has not been used for any personal purposes. If it has, get the loan split before you spend any on IP's.
     
  18. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    It depends what you mean - unclear about a LOC in an offset account?
     
  19. Baker

    Baker Well-Known Member

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    No, the only withdrawn funds have gone directly towards IP purchasing expenses.

    Sorry, I may have used the wrong descriptor? It is an equity release of 80% of the property value, parked in an account that counts as an offset for that loan:
     
  20. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    So you have borrowed to park money into an offset account, see
    Tax Tip 1: Parking borrowed money in an offset account