Hi guys Hope you can let me know if my situation is going to cause a mixed funds issue which will impact my deductibility. I completed a loan split of $60k for the deposit of investment property and funds to complete. These funds were disbursed into a separate transaction account and have been sitting there until needed. This account has been set up to be drawn from when settlement occurs for any shortfall of funds. Settlement is tomorrow and have just been advised that I am $3k short. Conveyancer wants me to put the full $3k into the account with a little buffer. The property was purchased off the plan and the loan amount was worked off full stamp duty to be safe but it looks like stamp duty payable will be $2k less. The conveyancer wants me to put in the extra $2k into the funds to complete account just incase the bank doesn't pay it back at settlement since they are not aware of the reduced stamps yet. Will it cause an issue if I put in the $3k + $2k and the bank pays the $2k stamp duty back at settlement into the account where the funds to complete are sitting? Will it only cause an issue if I transfer, after settlement, any surplus funds into my own personal account? I presume it will because my own funds have been mixed with the loan split funds. If it will cause mixed funds, does that mean I will need to leave any surplus in that account and only use it for purchases in relation to that property in the future? Thanks
Hi Terry Thanks for the quick reply. Unfortunately I do not have a tax agent as yet because I was going to get one once my property was purchased. I have always done my own tax. I doubt there will be enough time to find a tax agent that will give me advice today since I am not a client yet. To be safe, will there be any issues in deductibility if I do not transfer any surplus funds to my personal account and I leave it there to be used solely for the investment property. That way the tax department will know that every cent paid out from the loan split of $60k was used for an investment purpose.
Thanks Terry just read your tip. The account that the split loan funds were disbursed into is an empty savings account but on the transaction history it shows that that bank hasn't paid me any interest yet. Can I call the bank and get them to stop my account from earning any interest? That way the savings interest paid doesn't mix with the funds paid out.
I think the issue is (or at least one of the issues) is that if you place non-borrowed funds in the offset you dilute the deductibility and it will be an ongoing hassle to manage. The other issue which potentially may affect is that when the funds are placed in a savings account it represents the act of borrowing the money and yet no income producing asset has been acquired. If you then go and use the borrowed cash to purchase an asset it is a cash transaction and there isn't a direct linkage from the act of borrowing to the acquisition of the asset. Only a tax specialist can advise on this, but I believe this is why a LOC is the preferred option. One option that may address the first issue is to pay the additional amount from another source (ie not the savings account). By doing so you are not diluting the borrowed funds, the downside is that that additional amount may not be deductible. Best to get a specialist to check, but work on the assumption that your conveyancer will not know and just wants the transaction to conclude (sounds a bit mean, but they are not likely to know the tax rules).
Thanks for the advice guys. Settlement went through today but I had to contribute money into the transaction account to make up the shortfall. I am not going to pull out any spare money from there and use it only for the invest property bills so hopefully I find a tax agent that is happy with how it was done and I can claim full deductibility.
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