Tax - Loan - bank disbursed surplus funds to me

Hi,

I made a previous thread or so about surplus funds the bank were holding. I am still waiting a call back to wrap my head around this, but I just can't. Basically, I am borrowing to live in, but I am wanting the loan to be fully 100% interest deductible in the future if I ever rent it out, therefore I am disbursing everything through the loan to be 100% certain. Anything like water service/use charges , electricity etc. while it was building and not rented out I have been tallying up to add to the CGT cost base if I eventually sell it.

Now - the bank has disbursed all my progress payments, I"ve gotten PCI and handover/keys. I still have $27,411.40 in unused loan amounts.This consists of everything from air conditioning to painting and lighting quotes, and currently $1,502.60 in surplus funds. This was previously $3,509.60 but I believe variation orders to reduce my final progress payment $500-600 and the use of inspection services not previously included in my quotes has been paid out to reduce this $3,509.60.

Now - the bank basically disbursed the $1,502.60 "surplus funds" from my mortgage account TO my mortgage account at PCI completion. After two phone calls I was guaranteed/told that this was "excess funds" of mine previously contributed, that were not part of the loan and being returned. Not withstanding I am sure I even had another account stated as my 'surplus funds' to be distributed - so they got that wrong.

I've finally a few weeks later transferred it to my offset account, and lo' and behold my loan balance increases. In other words the $1,502.60 has increased my loan amount and been disbursed to my loan account (if that makes sense). So what confused us in the past and the loan officers I called up (bank workers are clueless, i coudl tell they just wanted me to 'wait' for it all to settle as they had NFI) was the loan balance hadn't moved, as obviously this positive cash balance was sitting there as a 'balance' in the account, while the 'available balance' showed the correct negative "loan amount".

It's only becoming apparent that upon transferring this to the offset that it's part of the loan balance as the negative loan available balance has now increased. For obvious reasons this amount can't go to myself - less I taint the whole thing. I've reversed it a few minutes later by returning the surplus funds from offset account straight back to the mortgage account - will this be ok?

My plan is to obviously wait for a call back to the escalated senior officer. Failing this is to instruct them to disburse future house related payments (for trades) firstly from this cash balance then the remainder from the loan. That way there is a trail showing that this cash balance isn't for my personal use, and although disbursed to my mortgage account first, it was eventually used for a house related purpose.

THe end result is I would end up with unused approved loan amounts, as they used part cash to pay whatever trade it is.


Is this ok???Would it taint my interest still?

I would have hoped even if I did transfer this to my offset, that the eventual payment of a trade invoice would be a "look through" treatment. But as someone responded to my other thread, they still view it as a personal loan disbursement as it went to me first? I am hoping at least by leaving it reversed and in my mortgage account , that it can be traced straight through from disbursement by bank from loan account back to loan account, then on to tradie. It would have been similar to had they disbursed direct from the account to tradie before releasing the surplus funds - in which case you would never have seen the $1,502.60 disbursed and hit my accounts (only the payment to the tradie).

Any issues in terms of interest deductibility in the future? I am hoping this doesn't taint the loan.

LAST but not least - which is my beef with the senior officer to call back, if I had surplus funds from over contributing based off LVR to my approved valuation and laon amounts, how can they "return it to me" by disbursing and increasing my loan amount? defies logic? I would think I should be lent money for all other building and trades, and cash from my overpayment returned? I have done a spreadsheet on all past payments and still trying to link the logic of this surplus funds forming part of the approved loan to be disbursed. Perhaps something wrong in the process...

Anyway.. hope it isn't too late to have this surplus $1,502.60 applied to future trades and avoid tainting anything.

 

Calling @Terry_w and @Paul@PFI

I don't really understand your question but to be safe, I would just put the $1,502.60 back into the loan account and leave it there. It's a small amount, so the amount of interest would be negligible. IMO, its not worth contaminating the loan over such a small amount.

 

I'm with Perthguy..

Solution : Credit surplus back to loan. Then the loan balance is fully deductible. Dont pay occupancy expenses relating to the period you will live there.

 

Hi @Perthguy @Paul@PFI

I received a call back from a 'senior' officer, but still struggled to explain to them how tax doesn't work - you can't just pay out then return money and it offsets, they pro rata the repayment against the personal and property portions, yada yada.

Basically what she explained:

$450k total loan, $50k - includes $30k for painting, 5k for window treatments, $15k "surplus funds".

$400k for builders total payments for the house.

So basically upon PCI they've paid out the final payment, so loan total $400k, and paid out the $15k "surplus funds" without my instruction or knowledge this would happen . Loan balance is $400k as the disbursal is deposited back into the same home loan account. It's only now that I've "transferred" to my offset account the $15k for example I've seen the "available" of the account drop from $15k to $0, but the "balance" has now increased another $15,000.

In other words loan balance is now $415,000. I had rang twice to confirm this wouldn't be in my loan amount, but apparently it is.

My question is: I reversed the transfer to my offset account immediately, so same day. GIven they've lent me money, by essentially depositing cash into my account... will I stay within tax deductibility for interest purposes if I get them to pay any future property invoices/tradies and work through the mortgage account - in other words use up the cash balance? Is it tainted now that it's been disbursed by the mortgage account to the mortgage account ? Or the fact tha tI Transferred the surplus funds out into my offset, even though I reversed it today (same day reversal)?


The senior person on the phone said that your "approved loan amount" of lets say $450,000 includes the surpluse funds. Which I find silly. If I don't use my $30,000 for painting, or all of it, then they will then disburse another $30,000 of "surplus funds" at the end of the job to me. Again another red flag as it's cash to me personally.

I have requested they make notes and plan to make enquiries to have them "offset the surplus funds against the principal" - I don't get what the caller meant but basically if I don't use my $30,000 for painting I want them to only lend me $420,000 and just never disburse the $30k for painting. IN other words my loan will be for $420k and I can guarantee all interest relates to property, no private, so when I rent it I can deduct 100% interest.


Given this is future "surplus" how can I solve my current issue where they disbursed the $5k surplus funds from my mortgage account back to the same account? Can I get 3rd party tradies and quotes to be paid from this cash balance in the mortgage bank account?

If so will the ATO then look at the disbursement of surplus funds - even though it was to myself, as it went to the same mortgage account (for which I reversed my incorrect transfer out of it, the same day) and was subsequently disbursed to a legitimate property expense i.e. : payment for a side fence or some other work, then my loan is UNTAINTED? Any future interest would therefore be 100% deductible?

Would really appreciate thoughts.

 

I can understand the difference to the above suggestions, to me paying for all my paint pots and asking for a reimbursement (as they disburse directly to me as the final recipient).

I am hoping by them disbursing from the mortgage, cash backt o the mortgage account, by then disbursing tradie invoice payments from that same account out of the cash balance, that they will look at the original disbursement as being for a property related, 100% deductible purpose when it comes to interest down the track (once I rent property).

Ideally I have contacted them to ask for a complete reversal of the surplus funds paid out. In other words I'd rather they had left the surplus funds as unpaid or removed it from the total loan approved than pay me the surplus funds. It's like lending me money by paying me cash - and I agree it will taint things if not kept in check.

But am I too far too gone with my above situation? Can I argue all still 100% untainted?

 

Hi



You had a mixed loan when you borrowed money to put into your offset account. When you transferred the money back you mixed it a bit more. You needed to split it first – better still you should have left it there.



Not sure what you expect the bank to tell you on the call back from the senior officer – this can’t be fixed.



Did the offset account hold any other cash? Before or after the transfer?



You probably borrowed 80%, you used some of your funds, and therefore didn’t need the 80% but they gave you the full 80% anyway. They are not reimbursing you by returning your own money, but they are lending you money.