Paying for Renos

I am fairly new to investing. I've owned my IP for a three of years now. I'd like to do some renovations on the IP (less than $25k). I want to make sure I pay for it the right way to maintain a proper paper trail for tax purposes.

I've read heavily through this forum and below is my idea on how to do this. Is this an acceptable method?

My PPOR loan is fully offset. So I'll get my bank to create a loan split for $25k. Then transfer $25k from my offset into this new Loan Split.

My loan has redraw available, but it will only redraw to accounts that are owned by me. So I will create a Savings account with my bank just for this purpose. This will allow me to transfer money to tradies and use a debit card.


So in practice.. If have an invoice for $2,000 for carpet then I would redraw to the savings account and then transfer to the carpet company.


Seems a little long winded to me. But the paper trail will be very clear.

Am I going about this the right way?

 

Split loan
Draw new loan proceeds to a clear offset so its doesnt blend
Pay the carpet people etc from the offset.

Dont draw down to savings accounts !! It gets blended with other $ savings and its stuffs deductions for interest.

eg Drw down $2K for carpet to the offset. Then move offset to savings. There is already 2K there. So only 50% of the loan interest n the carpet is deductible. But if you pay the carpet direct from the offset it should be 100% deductible interest.

 

Thanks Paul and Rolf.

Paul - Yes I think I could do that too. My thinking with using a savings account rather than an Offset is because my loan type doesn't allow for a debit card to be attached to the offset, and I didn't want to use my credit card. As it turns out, many tradies prefer a bank transfer anyway. But I presumed that it maybe useful having a debit card too.

The savings account would function solely for the purpose of this Loan split. So the would be only a handful of transactions on it, nothing for any other purpose other than Renovations.

 

Well.. actually, maybe I can have a debit card for my offset accounts. At present we just make regular transfers to a savings account that I have a debit card on or I transfer to my credit card. Pretty much the Money Smarts system

 

I have a webinar recorded on my website on this topic.