Tax Tip 1: Parking borrowed money in an offset account

Hi Terry,

1. So you're saying that if you put 50k borrowed funds into offset and you put personal non borrowed funds into the offset (50k) total of 100k in offset and it has now become mixed all you have to do to un mix it is put the borrowed funds back into the loan account and this cleans it? wouldn't this be the same example as urine in the drink? you wouldn't be able to tell which was which. so the 50k going back into the loan wouldn't be deductible?

2. if it's very clear etc you have 50k borrowed funds put into the offset the bank puts in $15 a month for interest etc. couldn't you just apportion the offset from the deductible borrowed funds and the non borrowed funds?

3. offset vs redraw i've been under the assumption that with a redraw as it's still in the loan. if the market goes down you might loose the equity you were going to use so it's more at risk.

where as in a offset account it is much safer as even if the property price goes down the borrowed funds are still safe. (safer then a redraw)

Elives,

 

Hi Elives

1. If you mixed cash and borrowed funds in an offset it will be mixed. The only way to unmix things is to fully pay off that loan and then reborrow.

2. Why would a bank put in $15? Do you mean the bank charge $15 per month in interest? If so this won't mix.

3. There will be an all monies clause so the bank could take your offset money to pay down the loan. Unlikely to happen maybe.

I stress that it is not a good idea to borrow and park into an offset account.

 

No. It is some kind of interest payment cashback promotion they are running. It is an accounting nightmare and not really worth it for such a small amount. Also, no choice of where the funds get deposited.

 

In that case it will be a mixed loan.

This is what happens when you 'park money'. Can you park your cash somewhere else?

 

https://mozo.com.au/home-loans/articles/ing-direct-launches-new-mortgage-cash-back-offer/3162873157

@Elives

^^^ this. I could not make it work. I ended up just transferring all the money back into the loan account and I am making my payments from there. Obviously check with your bank what will happen with the loan if you transfer all the money back. Some close automatically.

 

Yes, we worked it out earlier... it is now 'parked' in the loan account

The money is now invested directly from the loan account.

 

what if you had 2 offset accounts 1 for the borrowed funds and 1 for the non borrowed funds?

i'm worried with a redraw facility that if prices go down your equity is locked up (not readily available) and LOC has a high interest rate..

 

Not advisable to use an offset and park, but if you must a second one could prevent contamination potentially.

 

hello again,

quick question if i have 40k borrowed funds in offset. and i want to invest 15k in shares and put the rest back into loan as i'm going to be putting cash in the offset account. is it ok to invest the 15k straight from offset or should i put whole 40k back into loan and pay $50 to then take the 15k back out to invest in shares?

 

Gee something simple like this can be messy. I suggest you don't borrow and park in an offset but set it up properly. If you want to run the risk then would be better to paying down the loan and borrowing to directly invest.

 

the bank put it directly into offset account, so i'll just put it back into the loan and then take the 15k out to invest in shares. and next time ask the bank just to make the extra funds as a redraw.

Cheers once again Terry!

 

Hi Terry

Couple of month ago i shopped around and refinanced my PPOR loan. After the refinance i got 35k extra in my new loan offset account (refinanced my PPOR for 80% house value) . Wish i had started reading in this before then. I also had 110 K in the same offset account before.

My loan has both redraw option and offset account.

Can i now transfer the money i want to use for investment property (expense and deposit) back to loan. Which will show as redrawable amount after the transfer. This i can use straight from the loan to transfer out to required expense and deposit accounts. Will this qualify as tax deductible?

I wish would have know this couple of month ago and would have asked for a split.

 

Raj,

Your PPOR loan is now mixed purpose. Paying back into the loan will pay down each purpose. But if you never rent the PPOR out this won't matter. You can pay the loan down and then split and reborrow, using the borrowed money for investments. Interest on this portion should then be deductible.

 

Thanks Terry,

Renting PPOR is not mind at all this stage. I am planing to buy my first IP with money from offset account. So are you saying Putting money back in the loan and using it from straight from there for IP deposit and expense and the interest paid on that amount will be tax deductible?

Am i getting that right? Sorry I am confused i might need to read more.

I am just starting out and wanted to get this right. What is best option for me now. I have PPOR loan with all the spare money siting in offset account. My account allows me to put in back in the loan as a redrawable amount. I can transfer from there to any accounts paymets bpys etc. I hoping not to refinance, i did that just couple of month ago.

 

My advice would be not to do that. Split the loan and reborrow.

 

Thanks Terry,
I will try that with my lender.

 

Just off the phone from my loan provider. Splitting the loan is as easy as fill in a form and send. They said they will change me 100$ for it, but dint think it was that easy.
Thanks again Terry.

 

@Terry_w can I please get your thoughts on my situation.

We are pulling $65K out of our PPOR loan in equity, $50K towards purchase of IP & $15K towards renovations of PPOR.

We currently have offset accounts set up all against PPOR.

Where should the lender fund the $50K and $15K to so that we do not have any Tax issues?

Thanks in advance,
Phil

 

Increase the PPOR loan by $15k and set up a LOC for $50k.

 

excellent @Terry_w thankyou.