Mixing borrowed funds question

Just have a question regarding mixing of borrowed funds.

The scenario-
-I used $40k of borrowed funds to buy shares and the current value of these shares is now $47k.
-I'd like to sell all of these shares and put the money into another investment.
-If I sell the shares and put the money into a clean offset account I'm assuming that this would be mixing borrowed funds with personal funds as only $40k was originally borrowed and $7k is capital gain.
-I realise that ideally the total funds should be paid into the original loan and redrawn for investment again however the loan is fixed so I am unable to do this.

If I was to sell all of the shares, have the money paid into a clean offset account and then reinvest the total funds within days would this be enough to cause a mixing issue given that the actual $ effect would be negligible over such a short period?

Thanks in advance

 

I beleive you need to pay into the loan and redraw again for the interest to potentially be deductible.

 

I have a new video coming to PAS TV in a new playlist on investments which speciafically addresses the OP question.
When you sell shares at a profit you should only even repay the original cost OR credit the COST to the offset - Not all the sale proceeds. Same as when you sell shares at a loss only repay the lesser sale proceeds, not cost. This preserves the correct deductible interest and maximises it.

 

Thank you, very helpful.

So say my shares are worth $47k and $40k is the original funds borrowed.
Can I just sell $40k worth in total and put that back in the original offset or does it have to be the original (borrowed ) cost of each individual share?

Thanks

Wilko

 

You misunderstand. You can sell $47k worth but should only repay $40K of the borrowed funds.

Using a simple example

Peter buys two parcels of shares $40K of VAS ETFs and $40K fo CBA. All the funds are borrowed. He later seeks to sell the CBA now worth $47K. If he applies $47K he is losing interest deductibility on $7K. He should only repay $40K. This preserves the original $40K borrowe to buy VAS rather than reducing the borrowing down to $33K.

You really shouldnt be applying sales etc to the offset. Crediting the offset reduces interest but doesnt discharge the original loan. Its easily made into a mess.

 

Interesting you said OR credit the cost to the offset.

I actually asked this very question to KnowledgeShop and they indicate that if it is credited to the offset and then funds redrawn from the offset it is an issue.

Do you have a ruling that says otherwise ?

 

Ok that original post you made seems to have been amended in this post. The original post seemed to indicate you could either put the funds into the main loan OR the offset. This post seems to say no.

 

i did correct it.

 

If shares were sold and only the borrowed amount was credited back to the offset which is linked to the original loan then there wouldn't be any interest to deduct would there?
If the money wasn't being reinvested elsewhere could it go back into the offset first and then be paid into the loan without the affecting the deductability of the loan?

 

yes i dont see an issue with that.