Refinancing and interest deduction - how do

Will it be OK if I immediately after settlement use the money from the transaction account to pay down the loan, then only redraw money from the loan when I purchase the next property?

 

Ive been talking to 2 different accountants and their advice were similar to this:

https://propertychat.com.au/communi...y-in-an-offset-account.1313/page-3#post-57850

both said something along the line of "why bother with several accounts? it will confuse you"...

Having read the posts from this forum, I guess it makes more sense to ensure each loan is set up for one purpose as working out the deductible part of a mixed loan seem all too complicated...

 

I have also answered this in the same post = stronger chance of interest deductibility.

 

It can be done with one mixed investment loan, but just split it before paying off any portion (except on sale of an asset that related to that portion)

 

This is what I plan to do now: immediately after settlement I pay down the loan with the money in the offset account. But Westpac doesn't allow drawing a cheque from a loan account. So when I actually redraw I will put the money in a newly created transaction account and then draw a cheque from there to buy my next IP.

So from your posts in
https://propertychat.com.au/communi...rrowed-money-in-an-offset-account.1313/page-4
my understanding is this should mostly likely create sufficient connection between the borrowed funds and the purchase of the IP.


But my broker warned me that the catch is that there's a daily redraw limit which could be changed by the bank at any time. He's also can't be certain what that amount would be until the application is approved (? really?) but it's subject to change in the future anyway. So if I'm prepare to go to auction with a $100,000 cheque today, and my redraw limit is $50,000, I need to redraw in 2 lots of $50,000 into my transaction account 2 days ahead...

This seems to be a lot of hassle having to route the money to a transaction account to draw a cheque. I wonder which banks allow drawing a cheque from a loan account? This doesn't seem to be a popular feature.

(I'm going with Westpac as their valuation is substantially higher than the 3 other banks I've been through. )

 

Westpac have a LOC product too.

 

The refinance has now settled. Like most cases my new bank just dumped to settlement proceeds to the transaction account. I then transferred the settlement proceeds back into the loan (it is a separate loan account which only contains the equity portion), with a plan to redraw it when I'm ready to buy my next IP

Now my question is, the settlement proceeds are $12000 short.

$6000 is the amount the new bank has overpaid the old bank (which my broker says is standard practice and when the old loan accounts are eventually closed that money will be paid into my old bank's transaction account )
$4000 is being held by the new bank until the old bank is done on their side. That money will be deposited into my new bank's transaction account when done.
$2000 being fees and govt charges


1) Do I need to do anything with the shortfall now?
My loan account is now showing -$12000 negative
My broker says it could take another week to get all my $6000 and$4000 back

2) What do I do when I eventually get back the $6000 in the old bank and the $4000 in the new bank (which may take another week)? Just deposit them into the loan immediately ?

3) if I do 2) above, I would still be eventually $2000 short. Will all the interest incurred in this loan be deductible?

 

Oh dear. Its getting even messier now. Did you get tax advice?

 

I spoke to 2 accountants and both said it wasn't necessary to split up the accounts to match the original loan amounts, and as long as the new money drawn down was used to purchase the property, it would be deductible, even if the month was parked in the offset account... There's no need to deposit the loan proceeds back into the loan account.

Anyway what do I need to do to get out of this mess now? My loan account is showing balance of -$12000 (negative) and it's starting to incur interest now. Later on when I redraw the fund from the account to pay the deposit for my next IP how will I calculate the deductible portion of the interest?

 

You need to get professional help - preferably not from those 2 accountants you see before.