Tax implications of temporarily putting money into an IP mortgage account

@Terry_w - are you taking the p!$$?

 

No, he is appealing to those that partake in urine therapy.

What I take away from this, is there is no good reason behind this rule, it would not have a negative impact on the govt tax system if it was allowed to be reversed as a mistake. If it was allowed, things would carry on the same.

 

I think we can refinance the property and get the appreciate funds in offset and use the 200k as deposite for a bigger value PPOR, please correct me if wrong

 

Your wrong and right. You can do this but the interest on the $200k would not be deductible because this is a private expense.

 

Wha

terry,
What if the bank creates a different investment account where they can withdraw this for investment and claim interest as that's a investment account

 

it doesn't matter whether the account is called 'investment' or not as this has no bearing on deductibility. This will still depend what the funds are used for.

 

I have a question along the same lines..

About 4 years ago I took out a loan for my son of 50k to help him avoid LMI on his unit he brought,he now wants to repay me this loan as he has the cash.
So is there any way I can keep this loan and use it for IP deposit or is it better to put that cash into our PPOR loan and than ask bank to do a seperate split again??
Hope this makes sense...

 

it is up to you what you do with the money.
You should probably pay off your loan and then reborrow. Just make sure the loan isn't closed if you pay it back.

if you put the money in other accounts the interest on the loan won't be deductible any longer.

 

Thanks for all the replies everyone.

As well as a new PPOR I'm also planning to buy another IP.
So I could refinance and take out a new $199k loan secured by the existing IP. But I guess this wouldn't really be solving anything... Effectively, my deductable debt will always be $199k less than it could have been Well, until I finish paying off my PPOR at least.
It seems the only way to undo the mistake is to sell the exising IP and use the money to reduce the non-deductable debt on the PPOR.
My only consolation is the short term saving on interest while I look for the new PPOR (which could take a while)

@Terry_w Could you send me a link to that Private Binding Ruling you mentioned?

@dabbler I agree with you that fundamentally there should be nothing wrong with this.

 

you will have to go back and search through my tax tips. I don't remember where I have referenced it.

 

Yes.

 

I wish I had a $1 solution to the problem of someone "parking" savings into their mortgage accidentally. I would make a mint. There just isnt one.

I had a client put $400K into their IP loan of $450K. It shattered me to explain that the loan lost 88.88% of its deductability based on a simple error in choosing the loan account rather than the offset.

The issue above is no different to those who pay down their PPOR and then consider renting it out. When they realise a offset would have protected the loan they cant fix that either.

 

I think we beat that one out a while ago, but with your yes, is that from experience ?

 

yeah, I think I am late to the party. Not from personal experience, no. But I read a lot of cases and rulings and material from the ATO web site. From a lay point of view, the actions of the ATO can seem petty and vindictive. They are not always right. But based on what I have read, I would assume that they would not allow a taxpayer to reverse mistakenly paying out a loan. It is like a SMSF account. You can't just accidentally transfer money out of the account in breach of the law. So be careful when transferring in and out of accounts I guess!

 

Yeah, that is true to be careful.

I question things a lot, indeed many of the accounts that are "offsets" are in fact just re draws, that is why I find it a bit narky, and even with savvy people, a wrong click is easy when you have a long list of accounts.anyway, they make the rules, cause they can & cause most of us do not have money to just throw at changing their minds

I wonder how it would go, if you went to bank, had bank teller assist with transaction and they momentarily did this by mistake and reversed it

 

One of my clients just had money mistakenly put into the wrong account by a certain bank (name starts with N). We have been trying to get them to reverse it for a month now and finally been told it is impossible because of audit reasons. All they have offered is a letter explaining. If the client is audited by the ATO and pays more tax as a result he will have to make a claim for compensation from the bank - and use their own letter as evidence of this.

Previouly I had myself mistakenly paid money into a loan with a different bank. I just rang them up and they reversed it immediately - ANZ.

 

Ah! This is exactly where I'm at at the moment. I had an offset account linked to my PPR and recently sold it. The remaining cash ( profit) from the sale is currently hanging around in the offset account not earning anything. I tried to link it to one of my IP accounts but because I'd previously added my wife's name to the offset account they won't link it to an account with only my name on it! I can't take her name off it because apparently you can't take a name off an account you have to close it and open a new account!
Which would mean a major hassle changing numbers for all my incomes and direct debits.

 

Offset accounts must be in the name of the loan account. You could just transfer your money to another offset account in your name only - but get legal and tax advice on the consequences.

 

So you're advising I shouldn't link the offset account to an IP when I don't have a PPR because of tax implications?
What I was doing in the past was taking money from my savings account and putting it in my offset just before my mortgage payment came out. That was reducing the amount of my mortgage on my PPR and hence the interest amount. I'd take it back out after to keep it seperate.

 

Don't know how you interpreted my post that way!

Firstly, I am not advising you. I have no idea of your situation and secondly it may be a good idea to have an offset account linked to an IP loan when you do not have any other nondeductible debt.

Why even have a savings account when you have an offset account? You would be losing interest savings.