Join Australia's most dynamic and respected property investment community

New refi funds put into everyday account by bank

Discussion in 'Accounting & Tax' started by mikey7, 28th Jul, 2016.

Tags:
  1. mikey7

    mikey7 Well-Known Member

    Joined:
    30th Mar, 2016
    Posts:
    197
    Location:
    Sydney
    Morning guys,

    Got a question for the tax guru's like @Terry_w..

    My refinance settled on Tuesday, and yesterday I had new funds appear in my everyday transaction account ($150k). Today, the loan accounts have appeared, fully drawn.

    So it looks like this:
    Everyday account: $160,000
    PPOR: -$amount
    IP LOAN1: -$100,000
    E LOAN: -$50,000

    (The E loan is an emergency account which I don't intend on touching unless for emergencies, as this current setup doesn't have an offset account.)

    So this morning, I have simply transferred the $150k into the relevant accounts in which they would have come, with the narrative 'Payoff - recycle'.

    So now it looks like this:
    Everyday account: $10,000
    PPOR: -$amount
    IP LOAN1: -$0
    E LOAN: -$0

    Is this OK to now use IP LOAN1 for investment purposes? Or has the bank stuffed up, and I need to do something else?

    When speaking with the bank person and signing docs in their office, I made it clear that I wanted the funds to stay in their accounts and be available for when I wanted it. She seemed to understand.. But then had some confusion with other things where she needed to ring the broker.

    Really hope it's all good at this early stage.. The way I understand it is that the money from IP LOAN1 wouldn't be claimable if it came out of my everyday account to pay for the IP costs anyways..

    Can anyone clarify please?

    Mike
     
  2. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

    Joined:
    18th Jun, 2015
    Posts:
    9,014
    Location:
    Sydney
    Which bank?

    This is something I warn about and a reason why a LOC is a good thing to use.

    If you have paid back the loan so that the loan balance is nil then you can start again, afresh. When you take the money out of the loan next time it will determine deductibility of interest.
     
  3. mikey7

    mikey7 Well-Known Member

    Joined:
    30th Mar, 2016
    Posts:
    197
    Location:
    Sydney
    Yeh sweet, that's what I thought, thanks. All is good then.

    It's Westpac.
     
    Jess Peletier likes this.
  4. Bran

    Bran Well-Known Member

    Joined:
    20th Jun, 2015
    Posts:
    3,222
    Location:
    At work
    Unless they close your loans :)
     
    Terry_w likes this.
  5. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

    Joined:
    18th Jun, 2015
    Posts:
    9,014
    Location:
    Sydney
    Westpac should be right with paying down to nil without closing the loan - but check with them before you do this.
     
    Bran likes this.
  6. Paul@PFI

    Paul@PFI Tax Accounting + SMSF Business Member

    Joined:
    18th Jun, 2015
    Posts:
    2,392
    Location:
    Sydney
    If you have full redraw rights thats the correct way. I usually advise clients to call and confirm before doing this as bank systems can close a loan when it gets to 0.00

    Plan B would be to arrange with Wpac for a offset linked to that loan and park the $150K in the offfset with NO OTHER $ until it is used.
     
  7. wylie

    wylie Moderator Staff Member

    Joined:
    18th Jun, 2015
    Posts:
    2,951
    Location:
    Brisbane
    I went to my local Westpac branch yesterday to ask about this. I'm receiving some funds soon, part of which I want to use to pay down an investment loan that is made up of bits and pieces of deductible drawings, but is a mess if I have to trace anything back. I asked if I could pay it down to zero and then immediately (still in the branch) draw it back up and get a bank cheque to walk to another bank to repay a private tax-deductible loan we've been drawing up as we need funds to pay for various things to do with our DA.

    I've checked with our accountant and he is happy that this passes the purpose test. It is repaying an already tax-deductible loan.

    She checked the loan type and said that is okay. I'm still wondering if I should leave $0.05 in it just in case paying it off completely triggers a closure. I don't want to put my trust in this staffer's answer if it means I risk this loan being closed, but I guess if it is drawn up immediately then that is unlikely.
     
    Perthguy likes this.
  8. mikey7

    mikey7 Well-Known Member

    Joined:
    30th Mar, 2016
    Posts:
    197
    Location:
    Sydney
    I'm fairly certain this is the way it was setup.
    I can't do offset if I want to keep the rate I am on. Its like another 1% if I want an offset.

    Each one now says, respectfully, $50k and $100k available, with $0 balance.

    I did it as soon as the accounts appeared in my login - I don't want to accumulate interest on something I'm not using. I'll call them now and make sure they don't close them.
     
    Last edited: 28th Jul, 2016
  9. Jess Peletier

    Jess Peletier Mortgage Broker - Australia Wide Business Member

    Joined:
    18th Jun, 2015
    Posts:
    2,781
    Location:
    Perth WA
    With Westpac they won't close them so you should be all good. Banks do this all the time - you can ask them not too, but they'll do it anyways. Very frustrating but usually easily fixed.
     
    mikey7 likes this.
  10. mikey7

    mikey7 Well-Known Member

    Joined:
    30th Mar, 2016
    Posts:
    197
    Location:
    Sydney
    Yeh thanks heaps Jess. Lady on the phone from Westpac said the same thing.
    Now to start making some offers for an IP!
     
    Jess Peletier likes this.
  11. Colin Rice

    Colin Rice Mortgage Broker Australia Wide Business Member

    Joined:
    9th Jul, 2015
    Posts:
    1,078
    Location:
    Perth
    Have had loan accounts closed by paying down to zero via redraw and managed to get it reopened. Always best to check with bank as some require a minimum balance to remain open.

    I used to request funds to be made available as redraw and told yes but funds where still put in the offset / transaction account.

    My accountant says you can get away with murder in this country if you dont get caught. Same applies to this topic as it is rarely checked but best to do it right from the outset.
     
  12. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

    Joined:
    18th Jun, 2015
    Posts:
    9,014
    Location:
    Sydney
    Colin - it seems you can get away with murder even if you do get caught - but that is a story for another day.

    What your accountant meant, probably, is that you can claim anything and may get away with it if there is no audit. Even if audited it is probably unlikely they will dig too deep. I had a client who did some silly stuff destroying deductibility of interest - he got audited but they didn't dig too deep.
     
    mikey7 and Colin Rice like this.
  13. Colin Rice

    Colin Rice Mortgage Broker Australia Wide Business Member

    Joined:
    9th Jul, 2015
    Posts:
    1,078
    Location:
    Perth
    His exact words where "they do not check anyway" but best to be safe than sorry.

    I estimate 90%+ loan structures and the movements of funds are not 100% correct.
     
  14. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

    Joined:
    18th Jun, 2015
    Posts:
    9,014
    Location:
    Sydney
    I think you might be right!
     
    Colin Rice likes this.
  15. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

    Joined:
    14th Jun, 2015
    Posts:
    1,171
    Location:
    Gold Coast
    R
    Our experience is that rocket repay can be paid down to zip

    ta

    rolf
     
    Colin Rice likes this.
  16. wylie

    wylie Moderator Staff Member

    Joined:
    18th Jun, 2015
    Posts:
    2,951
    Location:
    Brisbane
    This particular loan is titled "Rocket Investment Loan". I would prefer to pay it down to zero and then immediately draw it back up without leaving the branch.
     
  17. Colin Rice

    Colin Rice Mortgage Broker Australia Wide Business Member

    Joined:
    9th Jul, 2015
    Posts:
    1,078
    Location:
    Perth
    @wylie - its the same product but for investment loan.

    The term Rolf used is for OO.
     
  18. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

    Joined:
    18th Jun, 2015
    Posts:
    9,014
    Location:
    Sydney
    But then you have another problem - withdrawn funds - where do they go?

    I think with the Westpac Roket products money can be paid out directly from the loan to its destination via bpay, transfer etc.
     
  19. wylie

    wylie Moderator Staff Member

    Joined:
    18th Jun, 2015
    Posts:
    2,951
    Location:
    Brisbane
    Once I pay the Westpac loan down to zero, I will draw it back up and ask for a bank cheque and walk it to the other bank to repay the current loan (via LOC).

    The LOC loan is deductible and fully documented (costs of getting the DA through), but I'm hogging this family LOC and I want to repay it but keep the borrowing deductible. My accountant says this is just like refinancing from one bank to another and the deductibility will continue.

    But I'll owe a bank and not be hogging a family trust LOC that others may want to use.

    Does that sound ok?
     
  20. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

    Joined:
    18th Jun, 2015
    Posts:
    9,014
    Location:
    Sydney
    That sounds ok if you want to refinance LOC debt, but if that is not want you want you could be reducing deductible debt.