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Reverse mixed up offset account?

Discussion in 'Accounting & Tax' started by LucyCat, 24th Apr, 2016.

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  1. LucyCat

    LucyCat Active Member

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    Hi, everyone,

    Just signed the contract for my first IP. A lot of worries in my mind. Hope I can get some help here.

    Thanks in advance.

    My situation :

    I just refinanced with CBA. One new split loan is created for investment.
    Loan account - $160K DR borrowed against the equity in PPOR.
    Offset account - $160K CR.

    Q1 :
    Offset acct balance was $159K after bank fee was charged. So I transferred $1000 from my saving into the offset. Then I realised I just put a drop of urine into a cup of tea. I haven’t used any money yet. No interest has occurred, either. What can I do to rectify it? Is it really impossible?

    Should I......
    a) Move that $1000 back to the saving acct, and pay interest on $1000?
    b) Transfer that $1000 from offset to the actual loan?
    c) Transfer $1000 back to saving acct and deposit $1000 from saving to loan account ?
    d) Transfer $159K to loan acct, leave $1000 in offset?
    e) Too late now , nothing can be done.

    I think d) is the solution? Right ?
    Therefore, I can keep the borrowed money in the loan account, and use it for the deposit to REA’s trust account, 20% purchase price of property, future expenses for renovation /maintenance for IP.

    Thanks a lot.
     
  2. LucyCat

    LucyCat Active Member

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    Suppose now $159K is in loan account, offset only has $1000

    Q2 :
    After settlement, I'll use the money in loan account to fix lots of things (broken shower screens) before I put it on the market. The interest will be tax deductible, but the expenses won't, because the IP hasn't generated any income yet. Is this correct ?

    Q3 : The cost to fix the shower screens has to be claimed back via depreciation ?

    Thanks a lot.
     
  3. LucyCat

    LucyCat Active Member

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    Q4
    If the house is on the market on 1 June, but unfortunately, I can't get any rental income before 30 June, is the interest in the loan account still tax deductible in 2015-16 financial year?

    Thanks a lot.
     
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  4. LucyCat

    LucyCat Active Member

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    Q5
    A $300k new loan with offset against the IP will be created to settle the property.
    I presume it will look like this :
    IP loan : minus $300K
    IP loan offset : $0 balance.

    I don't have any non deductible debt.
    To reduce the interest,
    should I put my salary into the IP offset ?
    put the rental income into the offset as well ?
    If I take money out for private use, the interest will increase. Will the increased interest still tax deductible?

    That's all the questions I can think at the moment.
    I hope I have made my questions clear.

    Thanks a lot.
     
  5. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    1. Pay back the loan and set up a LOC.

    Or take the risk (see tax tip 1
    Tax Tip 1: Parking borrowed money in an offset account) and use a IO with parking money in the offset. You can pay off the loan to $0 and redraw (I don’t think this will close the CBA account but check before doing).

    Do this just prior to using money.



    2. Depends if it is available for rent and the loan relates to the property

    3. Yes probably, but depend how much it will cost

    4. Yes

    5. Yes why not

    Yes

    Yes Tax Tip 82: Taking money from an offset account on an IP and Claiming Interest
     
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  6. dabbler

    dabbler Well-Known Member

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    Just my thoughts......if you put 1k cash in offset, then no problem, it has not been used or mixed with personal purchases, if you continue to use this account for nothing but spending on your IP, then it should not be a problem.

    If worried, you could pay down and leave a small amount (like a $1 ) then pay for things direct by drawing loan back down, I made a mistake a while ago and paid out a new loan by paying the whole amount down :eek::eek::( Actually, it was not my mistake, I was advised it was ok, but the advice was wrong !
     
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  7. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    If the offset contains borrowed money then putting in cash will create a mixed purpose loan as the whole of the funds could not be traced to the borrowings.

    Dabbler - what happened when you paid out the loan in full, did the bank close the account?
     
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  8. LucyCat

    LucyCat Active Member

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    Thanks a lot, @Terry_w and @dabbler . I am happy to get some yes yes. All clear now. :)

    Now I looked back my questions, q5 was really stupid. I think I scared myself off due to that drop of urine.

    Thank you very much.
     
  9. Jess Peletier

    Jess Peletier Mortgage Broker - Australia Wide Business Member

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    DON'T PAY BACK THE CBA LOAN! It will close automatically. Instead, change it into a LOC and then repay.
     
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  10. dabbler

    dabbler Well-Known Member

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    Well I hope it does not make that much difference, seeing the interest amount on the actual loan (as cash went into offset) would not be increased, they would have to be pretty pedantic to ping you on this I would think, I am not saying I know.

    If you then used some of that money for unrelated things that the loan was taken for, then that would muddy the waters, otherwise would it not just look like a cash payment lowering interest claimed ?



    No, the did not close it as they checked what advice the CSR gave and was new finance, it was a bit of a worry though, if you went and paid it at a later time or without wrong advice, I do believe it would be too bad, so sad.
     
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  11. dabbler

    dabbler Well-Known Member

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    I suppose the question should be, is it safe to pay down but leaving one dollar drawn, this should prevent the loan being closed down with all lenders I would think (anyone reading this do your own checks with your lender/s)
     
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  12. Jess Peletier

    Jess Peletier Mortgage Broker - Australia Wide Business Member

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    $1 won't cut it apparently - advice given to me was $1000 to be safe.
     
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  13. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    1$ works with cba

    ta
    rolf
     
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  14. Jess Peletier

    Jess Peletier Mortgage Broker - Australia Wide Business Member

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    Well there you go! :D
     
  15. dabbler

    dabbler Well-Known Member

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    Imagine the shrill screams if shareholders found out banks let us mugs off by a dollar ! That could fund another shareholder meeting :p:D

    PS make sure you have nothing in the offset.....you may just get credited 2 dollars on the same day.....that would destroy the plan ! Maybe best with an amount larger than any interest credit you have had :)
     
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  16. Corey Batt

    Corey Batt Finance Strategist Business Plus Member

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    Definitely don't want to pay down CBA loans to zero - it will auto close the account.

    Pay down to $1 and draw out the necessary amount to pay for any purchase deposit/solicitor funds to complete - problem solved.
     
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  17. Joynz

    Joynz Well-Known Member

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    I kept the initial loan for my POPR owing $1 for about three years just in case. No offset on that loan. For the new loan against my POPR to part pay for the IP, I have When I The loan against my POPR to
    I kept my POPR loan with ING open with approx. $1.25 left to pay for about two years. From memory anything under $1 would have triggered the account closure.
     
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  18. dabbler

    dabbler Well-Known Member

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    To be honest, if it was me & acc was going to be left idle, I would probably choose $100 or $1000

    On the day I was going to do deposit for IP, I would pay down to $1 after checking with bank on policy, then draw money as needed from the loan if possible.

    @Terry_w do you consider loans mixed if you use a loan for more than 1 IP, I have one mixed like that.

    I had another loan that was drawn about 2.5k when split, that 2.5k was left drawn till new deposits etc needed, then returned the 2.5k in cash to loan so only interest will be related the one place.

    I found trying to do all these things perfectly is impossible with some lenders.
     
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  19. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Actually I think you might be right.

    If you are parking money in an offset then, assuming you can trace the funds to the borrowings, it should be treated like one big loan. Like a LOC but in reverse. Taking money out of the offset would be like borrowing it. but putting money into the offset would be like paying it down. This may not be such an issue it should be like paying a loan down. But it is when you take money out of the offset that it becomes mixed.
     
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  20. markson

    markson Well-Known Member

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    I am in the same boat. Have a CBA account and when they opened the account they parked the 100k in the offset account. The advise I was given by my broker was to pay it down to $1k and just leave it as that until I am ready to purchase