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Offset accounts and loan pollution

Discussion in 'Accounting & Tax' started by James Bond, 24th Jun, 2015.

  1. James Bond

    James Bond Well-Known Member

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    Hi

    If I have a loan against a property which is completely deductible and an offset account against it where all expenses and income related to that property enter and leave from, can I have a second offset against it where my personal income and expenses come and go from, or does that pollute the loan for tax purposes?

    Thanks

    JB
     
  2. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Yes you could.

    You could also pay all your wages etc into the first offset. No issues here as you only have to worry about contaminating borrowed funds, not cash.
     
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  3. James Bond

    James Bond Well-Known Member

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    Thanks Terry
     
  4. Paul@PFI

    Paul@PFI Tax Accounting + SMSF Business Member

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    Generally speaking ONE offset is usually only allowed. Mr Bond I see your problem you don't want it shaken and stirred (LOL at myself)

    If possible.... One offset against a NON DEDUCTIBLE loan first of all then one offset on any other property. Offsets just reduce the interest. It doesn't matter what the $ are from. One problem can be if You shouldn't use offsets to accumulate any new loan proceeds EVER unless its a distinct account.
    The general bank policy of advancing top up into a offset can be damaging in such cases. If they propose doing that there are three strategies to fix it :
    1. Draw down to a new savings account
    2. Create new offset against any other loan; ; OR
    2. Ensure new loan is redraw. Then repay the new loan to new redraw loan (balance =zero) and then redraw when loan is needed directly to solicitor, builder etc.

    Provided new loan proceeds don't ever go to offset you can put any $ you want in there.
     
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  5. Jess Peletier

    Jess Peletier Mortgage Broker - Australia Wide Business Member

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    Hi Paul - can you please clarify? I'm not sure this is correct - I have about 4 offsets linked to one of my loans, all for different purposes. None of them contain borrowed funds, but even if one for eg was funds from a loan top up, I'm not sure why this would be a problem? Nothing would be mixed?
     
  6. Paul@PFI

    Paul@PFI Tax Accounting + SMSF Business Member

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    That's unusual but you have a lender that allow multiple offsets - Good. You don't want to blend offset money if any is a top up. In your case if you did a top up and kept it separate there should be no concern. Lender name ?? Others may be interested in who offers multiple offsets.
     
  7. Jess Peletier

    Jess Peletier Mortgage Broker - Australia Wide Business Member

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    Ah - I thought you meant only one was allowed from a tax perspective, not a lender perspective. Phew ! :)

    This is with CBA - they let you have a a hundred if you want :) All included under package, it's very handy.
     
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  8. Perthguy

    Perthguy Well-Known Member

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    I know that people advise against funneling investment dollars through an offset account for investment purposes for a good reason. If I have a loan for $100k and have the loan funds drawn down into an offset account, then use the funds in the offset account for investment purposes, the interest on the loan is tax deductible. The issue is if non-borrowed funds are paid into the offset account. Now borrowed funds and non-borrowed funds have been mixed and the loan interest is no longer 100% tax deductible.

    A better solution is to have any investment funds paid directly from the loan account. I still have to find out from my lender if I am able to do this. Before I made any investments from the offset account, the lender deposited non-borrowed funds into the account. Now I have borrowed funds and non-borrowed funds mixed together. My plan is to make my investment payments directly from the loan.
     
  9. Perthguy

    Perthguy Well-Known Member

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    This is what I am working towards setting up. It is a lot easier than trying to funnel through an offset account and keep those funds "clean".
     
  10. htopg

    htopg Well-Known Member

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    Watch out how you "transfer" your offset from one lender to another lender during refinance.
    I had a investment loan with an offset account.
    After refinancing to another lender, I found out that the ”new" offset account has zero balance, and the "new" loan has the balance of (old loan - old offset).
    Oops... I just repaid the loan with my offset accidentally...
     
  11. Jess Peletier

    Jess Peletier Mortgage Broker - Australia Wide Business Member

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    Which lender? Be careful putting funds back in, as some will auto-discharge the loan.
     
  12. Perthguy

    Perthguy Well-Known Member

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    ING. I have to talk to them about how much I can put back in. This is for a build. I was thinking if I have to pay the builder, I could just transfer $15,000 to the loan account then pay the builder from there? I do have another option if that won't work.

    EDIT: that won't work. I wish I could convince ING not to deposit non-borrowed funds into that account, but I can't. It's that stupid interest payment rebate that I didn't want in the first place!

    Time for a rethink. Lucky I have not invested any of the borrowed funds so I can set it all up clean before my first payment.
     
  13. Jess Peletier

    Jess Peletier Mortgage Broker - Australia Wide Business Member

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    Maybe see if you can set up a LOC instead. That way you can deposit all the borrowed funds directly into the loan and transact straight from the LOC. The problem with SVR and redraw is that you can't usually pay someone straight from the loan account - it usually has to go via one of your own accounts first.
     
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  14. Perthguy

    Perthguy Well-Known Member

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    Ok. Cheers. I will speak to ING and if I can't do it that way, I do have an alternative.
     
  15. James Bond

    James Bond Well-Known Member

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    Yes me too with CBA. But still don't understand the answer. Can I put my salary into an account offset against an investment loan, thereby reducing the interest payable, and still have the interest being fully tax deductible?

    Thanks.

    JB
     
  16. Cadbury99

    Cadbury99 Well-Known Member

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    Yes, no problem with putting your salary into an offset account, it does not affect the tax deductabilty of the interest. It is what many investors do (including me when I had a job).
     
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  17. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    This could possibly be fixed.

    e.g $80,000 loan originally. You want to borrow $20,000 extra so set up a new split, but your lender insists they have to disburse the funds to somewhere other than the loan account. You get them deposited into your offset which contains cash. Now you cannot deduct the interest on the $20k account 9apportion at best)

    Solution is take $20k cash and pay it into the loan and then access it via redraw. Balance will be $0, but available funds $20,000. Redraw is treated as new borrowings for tax. So pay the deposit on the investment property directly from this loan account and you can claim all the interest.
     
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  18. James Bond

    James Bond Well-Known Member

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    Thanks for the response.

    JB
     
  19. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    YES.
     
  20. James Bond

    James Bond Well-Known Member

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    Marvellous. Thank you for the succinct and accurate response. And forgive my simplicity. :)

    JB