Surplus funds when refinancing IP

Hi all,

When an IP loan is being refinanced, and there is a slight surplus due to a small buffer being added in to the amounts i.e a few k, what can be done with this surplus without screwing things up?

Can the money be paid back into the loan, or will that screw with tax deductions?

 

best to just put it back in.
Strictly speaking it would be a mixed loan, but if you put it back in quick nothing will ever come of it

 

I have a similar situation...
I'm refinancing my owner occupied property. One day I might turn it into an IP, hence I'm trying to avoid mixing my loan for future tax deductability.

I'm going to have a small surplus (couple thousand) of borrowed money, due to a similar buffer in the new loan. The new lender insists that I must either nominate a bank account for an EFT of the surplus, or alternatively take it as a bank cheque. They will not directly deposit the surplus back into the new loan account.

With the options available, how do I not stuff up future tax deductability?

So if I receive the surplus borrowed money in an external account, and then put it straight back into the loan its still technically mixed...Is this likely to ever be questioned?

 

1. Consider using borrowed funds for paying more settlement costs eg legals, part of duty etc that you may be paying personally (if available).
2. Take their funds to savings then repay that amount to the loan balance (As Terry suggested) or
3. Take those funds to a clear offset or savings account and hold it separately and use the proceeds to pay property outgoings.
4. Prepay a expected deductible expense. This will NOT increase tax deductions this year. eg strat, rates. It will merely mean the (eg) strata levies account is in credit. Then as invoiced, claim deductions for the invoiced amount.
5. Use the $$$ for a capital purpose eg initial repairs, new appliances, capet etc if required. This may help you to bring forward items that may be enhanced prior to a new tenant perhaps with extra rent.

 

If done asap in the first month, no. The tax ruling is not so specific about a blended issue within the space of a few days. I would have doubts the ATO would express concern. TR 2000/2 is about LOCs and "redraws" and this isnt a matter in your example. It is an initial advance. s8-1 is the relevant matter in your example and the ATO may adopt a "reasonable basis" approach to any issue. I would think is quite reasonable to correct the issue as to leave it would certainly mean a % remains non-deductible. Its no different if a lender over paid a solicitors trust account either.

 

Hi Paul, I had my 2 loans refinanced and they were for one investment property and I had few thousand dollars surplus in both loan accounts- never made any extra repayments, it was just from paying off less interest and my new bank has put the combined surplus into new offset account on settlement.

I also had savings in old bank offset account and were transferred to new offset account to save interest on settlement day.

Can I put the surplus paid out to me back into the loans with same proportions as it was initially and use them in later stage if need to for income producing activity and claim interest on it as a deduction? The settlement happened more than a week ago. No other withdrawals have been made so far from the offset account.

I have no need of surplus paid out to me for private use and was never an intention.

 

You should be asked what are the tax consequences to doing that as you can do it.
YOu have provided additional information compared to your other post which I answered and it is even more mixed than expected.
The only way would be to refinance and split and then debt recycle the non-deductible splits.

Otherwise accept that the loan is mixed and claim the relevant portion.

 

Okay but to claim relevant portion and keep it simple, do I have to split loans?

I only have 2 transactions in my offset accounts- one is surplus paid to me and second is my own saved funds transferred into offset account.

Also, surplus that is paid to me as lump sum, under smaller loan of $120 k it shows that figure as loan drawdown figure as a breakdown, does that mean only this loan account is mixed and not the 400k loan?