No PPR, should we offset against IP or is there a better option?

Discussion in 'Investment Strategy' started by Ardi, 13th Feb, 2020.

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  1. Ardi

    Ardi Well-Known Member

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    Hi,

    We currently do not have any non deductible debt. We have about 150k in a savings account in my wife's name (she currently has no income) @ 1.84%.

    Are we better off to put this in an offset against a 50/50 IP at 3.5%. I am already in the highest tax bracket.

    We are looking to use this towards a PPR in the next 6 to 12 months.

    Thanks.
     
  2. Trainee

    Trainee Well-Known Member

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    Is the ip negatively geared so your wife has losses? Do the numbers.

    In the offset you save 3.5% x 55% = 1.9 after tax for you but the full 3.5% for her.

    Interest to her is 1.84 after (assume zero) tax.
     
  3. Peter_Tersteeg

    Peter_Tersteeg Well-Known Member Business Member

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    It's a bit of a no brainer. Put the money into an offset account, save as much interest as you can. Leave it there until you find something better to do with it.
     
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  4. Trainee

    Trainee Well-Known Member

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    As long as the offset isnt contaminated.
     
  5. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Plus Member

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    Do the maths.


    A. $150,000 x 1.84% =

    B. $75,000 x 3.5% =

    C. $75,000 x 3.5% =


    Then

    What is the tax on A, B and C

    If after tax B and C is bigger than A….
     
  6. Ardi

    Ardi Well-Known Member

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    Sorry should have put in original post, this IP is positively geared.
     
  7. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Plus Member

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    That doesn't change anything.
     
  8. Ardi

    Ardi Well-Known Member

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    Much appreciated Terry!
     
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  9. Patricia

    Patricia Well-Known Member

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    Could you please elaborate on the answer? So, if after tax, B and C is bigger than A, what should we do?

    In our case, if put in savings account, we will receive $4200 in interest (no tax charged).
    If put in offset account, we will reduce our tax bills to the amount of $5320.
    --> put in offset account?
    Thank you.
     
  10. Patricia

    Patricia Well-Known Member

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    PLEASE disregard the previous message.

    Could you please elaborate on the answer? So, if after tax, B and C is bigger than A, what should we do?

    In our case, if put in savings account, we will receive $4200 in interest (no tax charged).
    We then will have to pay $7600 in interest for the investment property but can claim back $2280, which makes it to $5320.

    --> put in offset account?
    Thank you.
     
  11. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Plus Member

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    I don't like answering should I type questions as there is much more to consider which you might not be aware of and I don't know your situation.

    I am not sure if your calcs are correct. Which puts more in your pocket?
     
  12. albanga

    albanga Well-Known Member

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    No math you will do will ever have money in savings better than being in your offset.

    The only better outcome could be to invest the money into other assets such as shares. However it may not be better and given your short time frame before purchasing again I personally would consider it unwise.

    So offset is a no brainer for me.
     
  13. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Plus Member

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    What about the situation where different entities are involved?

    Offset attached to an investment property in the name of Spouse A who is on the highest tax bracket. Interest rate 3.5%

    or

    Savings account in the name of Spouse B with a taxable income of $0. Interest rate 2%

    For every $100 put in the offset it will reduce the interest on the loan by say $4 and 47% tax would be paid on this leaving $3.50 x .53 in the hand = $1.85

    For every a $100 put in the savings account it will give interest income of $2 with no tax being payable.

    Not sure if my maths is correct or if there are savings accounts with such high interest, but it can work out better in the savings account if it is like this.
     
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