Tax Tip 1: Parking borrowed money in an offset account

lol

Yes, sorry. Any mixing in the past won't matter.

 

Thank you @Terry_w . I will be in touch soon!

 

Hi Terry

We have one loan account withe the Bank

Loan A PPOR : $500k
Offset A : $100k

We applied a topup of $200k last week to buy IP (20% deposit , stamp duty etc) and now

Loan A PPOR: $700k
Offset A : $300k

We then split into two loans

Loan A PPOR: $500k
Offset A: $100k
Loan B IP: $200k
Offset B: $200k

The topup fund has parked into Offset A for a few days, what can i do to make IP loan 100% tax deductible? Shall i just settle the IP loan with the fund in Offset B so IP will be 100% tax deductible?

 

see above. I have answered similar questions several times already.

 

Hi @Cyrus, you question was basically the same as mine. And as @Terry_w answered above, it won't matter the money was parked in the PPOR for a few days.

The funds are now two different accounts, so it is clear to ATO what is investment, what is not.

 

Hello @Terry_w . Long time reader, first time poster.
This last weekend, I've refinanced my PPOR from CBA to St George, and got an equity split at the same time. I perceive a problem, though, that in the process I've ended up with the loan split being deposited as cash in a new offset account (offsetting the PPOR), and a negative balance on the IO loan.
E.g.
Account 1 PPOR loan: $-500,000
Account 2 IP Loan: $-100,000
Account 3 Offset (offsetting PPOR): $+100,000

So account #2 has $100k of interest ticking away now, but I haven't spent any of it. Should I be moving the $+100k (less one dollar) from the offset #3 to the IP loan #2?

There's actually another transaction account #4 with a balance of $0, but will also offset the PPOR. So perhaps an easier option is to redirect #3 to offset the IP loan #2 instead? This will save me from paying interest, but allow the cash on hand?

 

I would suggest you get specific tax advice before moving that money

 

Email coming your way

 

I have a mixed P&I loan as a result of the CBA redraw scare. Half used for an income-producing investment, half withdrawn to my everyday account (obviously not investment). Half the interest is deductible and half of every principal repayment comes off each loan portion.

Can I reset the purpose of the second half of the loan by paying that amount back into the loan and then investing straight from the loan?

If the second half was used for another investment, and I disposed of that investment, then the purpose would be reset under TR2000/2 paragraph 45; but in this case the second half was just withdrawn into my everyday account, which is hard to class as a "particular use".

 

no

 

As I suspected. I would have to pay off the entire loan to reset the purpose? Until then I just claim deductions on half of the interest?

 

No, just split it into 2 and then pay off the private use portion.


Tax Tip 44: How to Un-Mix a Mixed Loan Tax Tip 44: How to Un-Mix a Mixed Loan

 

Can't believe I overlooked the obvious. Cheers

 

Hi @Terry_w in your experience do AMP allow
loan funds to be drawn directly into the loan account?

 

I don't think so.
Usually I set up clients with a LOC with AMP, they use the funds and then this is converted into an IO or PI loan.

 

See PBR
Authorisation Number: 1051459930312
Legal Database

This is a poorly worded private ruling, but it appears that appears to support the view that borrowing and parking money in an offset account and then using those funds to invest will result in the interest being deductible.

Note that you cannot rely on this ruling unless you were the applicant. If you were the applicant I would be resubmitting this and rephrasing things to seek further clarification.

 

I can confirm Amp allows transacting (including bpay) directly from loan and loc accounts.

Don’t use them to refinance deductible debt from multiple loan splits at another bank though. Even with the clearest of instructions they will screw it up and won’t / can’t fix it.

 

Loans with an ability to drawn down and pay individual expenses can be a trap. Unless you clearly apply the funds for the same purpose you can easily blend loans. I regularly encounter people who realise they used the wrong loan for this and then they "fix" it by moving money back and redrawing from the correct account or they transfer funds between two loans.
But it doesnt fix anything.

 

I was always under the impression it's the purpose of the funds that determine the deductibility status?

 

It's the use to which the borrowed Funds are put.