Refinancing and carrying over structure - tax deductibility

Discussion in 'Loans & Mortgage Brokers' started by starter, 8th Feb, 2018.

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  1. starter

    starter Active Member

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    Hi All,

    Need some help. currently I have the following loan structure

    Owner Occupy
    Loan A: 500K variable P&I with offset (all money in goes)
    Loan B: 200K IP Purpose IO variable - used as equity release to pay for down-payment for IP (currently has an offset of 80K only 120k used for down-payment)

    IP
    Loan C: 368K IP Purpose IO variable

    Question:
    1. If I refinance to another bank with same exact structure, my tax destructibility on my loan B and Loan C should not be affected. It will just carry over.
    2. Is there any way I can do it wrong in terms of transferring my 80K cash from offset of loan B to its equivalent offset account when I refinance?
    3. I am planning to fix loan C as it has better rates but I assume I cannot fix loan B because it has an offset amount. I understand that I cannot touch the remaining offset amount in Loan B unless I am using it directly for IP purposes like maintenance, correct?

    I consulted an accountant that I paid for and I did not get a confident answer.

    Thanks in advance
     
  2. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker Business Member

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    1. This is a statement not a question but refinancing generally doesn't change deductibility
    2. plenty of ways you could stuff it up. But transferring cash in an offset account to another offset account won't change things - unless the $80k is borrowed money.
    3. Fixed generally can't have offset accounts. You could use the cash for whatever you want - unless it is borrowed money
     
  3. starter

    starter Active Member

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    Thanks Terry.

    2. The 80k is a borrowed money. During equity release they created Loan B $200k owing with $200k cash offset. During the settlement, $120K was draw-dawned from offset to pay 120K deposit for IP. Now 80k is left in there sitting as a cash coming from borrowed money. What is the best way to move this to the new bank? just bank to bank? any documentation/statements I need to get. Basically I just want to make sure that whatever interest I get from Loan B is tax deductible.

    Thanks,
     
  4. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker Business Member

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    well, you have a few issues then.
     
  5. starter

    starter Active Member

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    May I ask what are the possible issues? Should I consult another accountant then?
     
  6. BennEznElle

    BennEznElle Well-Known Member

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    If you don't have confidence in the accountant you are using then you definitely should contact another one. It's important to get these things right. Perhaps worth contacting one of the accountants on here. There are a few in Sydney but if you don't need face to face, then there are a few more options.
     
  7. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker Business Member

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  8. Athikalaka

    Athikalaka Well-Known Member

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    I'm a bit confused with this statement along with the original post. You mention borrowed money but you also mention equity release.
    Did the lender evaluate your property and increase your loan by $200k as Loan B?
    Then you performed a drawdown of $120k for a deposit?

    That means you have $80k available in Loan B, not an offset... ?
    I read it as you have funds available in that loan which hasn't been touched. So it has not been used for investment or personal use (yet).
    Could you clarify?
     
  9. starter

    starter Active Member

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    Apologies for the confusion.
    Bank revalued my OO and increased my total loan and create Loan B.

    Loan B was created to pay for 20% of the IP. The bank created two accounts:

    Account 1 is $200K Loan (owing)
    Account 2 is $200K in Credit Offset

    Basically these two accounts cancel each other for first couple of months and didn't gain any interest. No money came in and out.

    When we settled the IP, bank withdrew $120K from Account 2 to pay for 20% of IP. So Account 2 balance was left at 80K.
     
  10. starter

    starter Active Member

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    I think I fall into Propbably as no any other transcations that was done in Loan B (both offset and loan account) besides paying for 20% of IP and some maintenance fixes that paid directly to tradies bank account.

    Thanks Terry
     
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  11. Jess Peletier

    Jess Peletier Mortgage Broker - Australia Wide Business Member

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    This can all be sorted very easily - get a decent investment savvy broker to do the refi for you, they'll make sure it's all done properly.

    You might want to create a new $120k split to reflect the actual costs, and another $80k split that you can use for the next IP/shares/whatever.
     
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  12. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker Business Member

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    And then ideally pay that $80k split off, without closing it, before reborrowing it again just before use.
     
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  13. Paul@PFI

    [email protected] Tax Accounting + SMSF Business Plus Member

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    Not quite sure an accountant was giving credit guidance