Offset accounts and loan pollution

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

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  1. Terry_w

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

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    You will be capitalising interest though. because you are borrowing to pay interest. This will generally be deductible under tax law unless the ATO apply Part IVA to deny the deduction. They have stated that they will deny deductions where the dominant purpose is to pay off the home loan sooner.

    So why are you doing this?
     
  2. Wukong

    Wukong Well-Known Member

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    Are there any other lenders that offer multiple offsets other than CBA?

    Do find multiple offsets fairly useful for budgeting purposes. Different pool of funds
     
  3. leon brown

    leon brown Well-Known Member

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    Hi Terry I meant to say that i will be capping interest
    I have edited that post .

    The reason for doing this is because I wish to transition to part time work and have the LOC funds
    as a " buffer" for I/P interest and repairs , the LOC will last 11.5 years without factoring rent increases and wage savings offsetting one I/P and in the meantime any savings will offset an I/P
     
  4. Terry_w

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

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    The ATO's view seems to be if you have the cashflow you should be paying the interest with cash and not borrowing it. They probably won't like your approach.
     
  5. Terry_w

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

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    But going back to your question about should you split the loan, ideally you should because if you sell a property you will have to repay (or not claim) the LOC portion associated with this. And you cannot choose to pay a portion of a loan as a deposit will come off all portions the loan was used for . This will cause you to loose tax deductions.
     
  6. leon brown

    leon brown Well-Known Member

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    Ok thank you for the insight.
    I thought that I would be OK in this scenario as I am not diverting the funds to pay off non deductible debt
    and i will be using the LOC like a transaction account but this may not be the case .

    What approach would you offer in my circumstances .
     
  7. Terry_w

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

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    Use a LOC to borrow to pay costs other than interest, and have the interest paid for out of the offset account where all wages and rents are deposited.
     
  8. david2015

    david2015 Member

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    My loan has redraw only. I was told by the lender that I can't pay directly from the loan account. It has to go through the linked account. Have you checked with your lender? Are you able to do this?