Redraw for IP Bill - How to do it.

So I have an IP that over the years the redraw has added up to about $800 with minor interest reductions etc. I still use an offset for everything and don't make extra repayment. I have a IP bill that I want to use this $800 to pay, however I can only redraw into my bank accounts and not pay the bill directly from the redraw.

To keep the entire loan tax deductible is it as simple as redrawing into my bank account (could even make an account zero), and then paying the bill from that account?

I know I need to run it by the accountant but obviously want to do it before the end of the FY. Anyone have any experience with this?

 

In order of least risk:

Ideally pay directly from the loan.
If you cannot redraw into an empty offset and pay from there.
If cannot have an empty offset redraw into a savings account that is empty and immediately pay the bill from there.

 

Thanks Terry, that clears it up. Will have to use an empty offset/saving accout.

 

have a read of my tax tip 1 while you are at it also.

 

Will do, thanks

 

I have an issue that relates to this.
I have a 10k loan split that I have paid off to $1 and intend on redrawing from this to pay all of my IP bills.
My property manager has agreed to direct debit bills and agency fees from my account however I have been advised by CBA that I cannot have a direct debit coming directly from my redraw account.
Due to this situation I am leaning towards withdrawing an amount from my redraw and parking it in an empty offset account and the direct debit could draw from that account.

How does this arrangement work? The offset account must have to offset against the loan in question so that no interest is accrued, however once I make my first direct debit to the property manager this will change and potentially confuse things.

Am I better off keeping an offset account empty and transferring funds into it the day or day before a direct debit is due? Is there another arrangement?

 

There may be no concern if you from time to time move a lump sum from the loan to offset and only use the offset for deductible purposes.

 

Read this whole thread:
Tax Tip 1: Parking borrowed money in an offset account

 

The situation I am imagining is this.

Redraw $9999 from Loan into Offset account, after a few bill payments the offset account drops from $9999 to $7000 meaning I am paying interest against $3000 in my loan account.
Can I say that the interest on this $3k is tax deductible or does the offset confuse things?

 

You can say anything. But what you should be asking is will the ATO accept that the interest on the loan relates to the production of assessable income and the answer is 'maybe'

 

This appears to fit with Option 3 in a post to another similiar thread today.
As Terry said its not what you think or say but the actual mechanics of whether the deductible use of borrowed money is evident. Without tainting it.

Surplus funds when refinancing IP

 

I have another question in relation to redraw and IP expenses.

If I have two IP loans let's call them IP loan 1 and IP loan 2, and IP loan 1 has a redraw amount of $5k.
If I redraw directly from IP loan 1 and use it to pay an expense for IP 2 how would this affect the interest tax deductions for IP loan 1?

 

It would be a mixed loan and you would have to apportion the interest between the 2 uses
But this might not pose a problem if the ownership of both properties is the same. Issues if one is sold though

 

Hi Terry,

Are you able to elaborate on what you mean by this: "Issues if one is sold though"?

 

The interest on any loan relating to that property which you were previously claiming would not be deductible.

 

Terry,

If I had mistakenly used the redraw rather than the offset account attached to the loan to pay the IP 2 expense of around $900 (I had setup a scheduled payment from the loan account instead of it's offset account). Would putting that amount back into the loan allow me obtain fully deductibility again, or is it a case that this can't be undone and my accountant needs to apportion going forward?

 

That would make things worse