Question on Refinancing - Offset Funds Locked

Hi all, a question regarding tax and my income property.

Have an IP with ~250k principal owing, and 100k in offset. I'm refinancing with an additional 100k cash-out.

I understand that I can only tax-deduct interest on the 250k, not the additional 100k.

My issue: Previous lender has now frozen my offset (so loan is now showing 150k owing, 0 available) until settlement. I'm worried that this will be consolidated into the principal at settlement time, i.e. only 150k owing, meaning I'll only be able to tax-deduct interest on the 150k.

Does anybody know if this is the case?

 

Which lender?
The question is whether it’s an offset to begin with, looking at the wording.

true offsets wouldnt be ‘available’?

 

ah, its with ING, and yes I think its actually an account with redraw facility - they referred to it as a 'sub-account'

 

If it is a redraw then it is effectively paid off the loan.
You only owe $150K.

 

sounds like only $150k potentially relates to that property and might have deductible interest. You have made a mistake.

 

Thanks for the reply, Terry. There's still a couple of days until settlement and the bank has said they will unfreeze my account for me to withdraw the funds. Hopefully I can undo this mistake

Thanks so much for raising that. I hadn't thought about what I was going to do with the funds, but I will be certain to keep them parked in my new "offset sub-account" until I am more informed.

 

Its too late. you have paid down a loan it seems.

 

Generally you split first. Then apply offsets to reduce the new split back to $0 on the non-deductible element.
I would be chasing ING and drawing their attention to the issue and the harm it may cause and see if they can do it properly. If ING can rework what they did it may be fixable. I have had 2 clients take the issue p with their lender who backdated and fixed it in each case. Tell them they have disregarded the effect on tax deductibility to your detriment and will lodge a AFCA compliant.