Some people control companies or trusts which have purchased properties, with the trustee or company borrowing money to acquire the properties with offset accounts attached to the loan. Sometimes these people put their personal money in the offset accounts of these loans so as to save tax. This can be a good strategy as it diverts income from an individual to a tax-advantaged entity. Care should be taken to clearly document these transfers as loans. The dangers if you don’t is that you could be taxed on the withdrawal of the money (more so with the company) and/or could end up losing your money. With a trust the trustee also has a general obligation to keep trust assets separate to other assets. Example Toon sets up a company to hold property and gets a loan in the company name. Toon also has $200,000 cash and wants to place this in the company loan because outside of the company she will be taxed at a higher rate the income generated from this. So, she shoves it in the company offset account. 5 years later she takes it out and the ATO audits the company and her and taxes her on the $200,000 as a dividend. Example 2 Pie does something similar but places her money in an offset account on a trust loan. Pie dies. Pie’s legal personal representative is person A but the person now controlling the trust is person B. The estate is not able to get this money back and into the Testamentary Discretionary Trust set up in Pie’s will. But it can work well with tax wise if properly documented. Similar to the strategy that I outlined at: Tax Tip 232: Simple Tax Strategy to Increase Negative Gearing Tax Tip 232: Simple Tax Strategy to Increase Deductions Example Beep is on a high income and owns a negatively geared property and the spouse of Beep, who is on a low income owns a property separately. Beep also controls a discretionary trust which holds property and has an offset account on its loan. The offset account on the spouse’s loan is full so Beep starts building up cash in his offset. This reduces his deductions and results in more tax being payable at 47%. After a while Beep realises he could take the $200,000 cash from his offset and make an interest free loan to the trustee of the trust with it putting the $200,000 in the trust’s offset account. If the interest rate is 4% this would divert $8,000 income from Beep to the trust. Beep saves almost $4,000 in tax. The trustee saves $8,000 in interest which means it has $8,000 more in income. This income could be diverted to the spouse who might be on the pay $2,300 in tax and that generates $1,700 in extra income for the family – in the first year. As always get legal advice, especially before transferring money to other entities as there are many other consequences as well as the ones mentioned above.