Tax Tip 1: Parking borrowed money in an offset account

Thanks a lot @Terry_w

So here is what my understanding is now:

1. Empty the existing savings account and make the balance zero.

2. Deposit $28,900 back into the loan account which already have some principal and interest paid back.

3. Redraw this amount and put it into the empty savings account from step 1.

4. Transfer this money from the savings account to the share trading account and buy shares.

5. Now the interest accrued on the loan account after the date i redrawed the funds will be deductible against the shares dividend income.

6. I can now use the savings account as normal for depositing other funds etc.

Am I correct?

 

Correct in what sense?

If you are asking whether the interest would be deductible, then that is the topic covered by the first post and subsequent posts. There is no clear answer. The only way to know would be to apply for a private ruling.

 

I don't know really. If the parking is ok then the offset would be operating like a quasi LOC so they could argue paying into the offset was like paying into the loan and the mixed loan was paid down to nil. When they take the money out to invest they could argue that the funds in the offset account can be traced to the borrowed money.

All very risky I think and best to do it properly from the start - pay directly from the loan account.

 

If the money from the IP loan is paid into a clean account (new/empty account, not used for anything else) but that account is offset against the OO loan, is that allowable?

I would assume not?

 

There are no restrictions on where you pay money so it would be allowable. You should be asking whether there would be any tax consequences though.

 

yes sorry that is what I meant.
I know the bank would allow it but would it impact deductibility of that loan (is it considered personal use for the time it is offsetting a personal account even if then used as an investment loan deposit)

 

That is the topic of this thread - there are 15 pages discussing the answer.

 

Unable to find this private ruling thing

 

They keep changing the links. Search on the legal database for the number in the URL. It is an old one so prob taken down now

 

Hi @Terry_w ,

Quick question on this,

Lets suppose I've got a 100k PPOR loan, I request my bank a split of 10k with an offset,

Split 1: 90k Loan
Split 2: 10k Loan and 10k Cash on the offset

e.g

• Month 1: Pay off 1k on split2 from the offset account then redraw 1k to buy shares
• Month 2: Pay off 2k on split2 from the offset account then redraw 2k to buy shares
• Month 3: Pay off 6.9k on split2 from the offset account then redraw 6.9k to buy shares ( not 7k to ensure it doesn't close the account )

Is this all ok and will the interest be deductible?

Thanks,

 

No and no

 

@Terry_w is there any tax tips you could point out to get to this end result?

Thank you,

 

You will have a mixed loan after the first deposit so any of the tips on mixed loans should be worth reading:

Tax Tip 3: Mixing Loans - Don’t do it https://propertychat.com.au/community/threads/tax-tip-3-mixing-loans-dont-do-it.1517/

Tax Tip 45: How to work out the Portions of a Mixed Loan Tax Tip 45: How to work out the Portions of a Mixed Loan


etc

 

Thank you so much!

Also, who can best give me this type of advise is it a Tax Adviser / Accountant or someone else? Anyone you would recommend around the Gold Coast area?

 

Only tax agents or tax lawyers can advise on tax. Accountants cannot unless they are either of those.

 

@Terry_w Thanks to this thread, we set up the structure couple of years ago to avoid mixing.

• We moved into a property A which is currently our owner occupier property with a loan of 600k. It has been an IO loan from beginning.
• We took 200k equity out couple of years ago from this house, and put it into two separate offset accounts of 100k each to offset the loan to avoid any mixing for future. There has been only one transaction in these offset accounts, that's bank depositing the money.

Now we are buying a Property B to live in and property A will become Investment.

• If we attach these offsets with borrowed money to our new PPOR (As its the same bank), we can save on our non deductible PPOR mortgage, and keep the interest on investment property high as per my understanding
• If in couple of years, we use money from those accounts to buy an Investment property , would that be mixing the loans ?

 

So you want to borrow and offset non-deductible debt? = Not deduction on the interest

Sounds like the loan is mixed now

Best to seek specific tax advice.

 

That is nice but I hope you don't want to claim the interest on that borrowed money.

 

Sorry, posted the above reply from my wife's account. Interest is out of question, as the money has always stayed in offset account and will stay in offset account. With no other transaction (interest or otherwise) , so it can be traced back to origin.