Tax Tip 82: Taking money from an offset account on an IP and Claiming Interest

Understand. Thank you!

 

@Terry_w
Hi Terry, firstly thank you for all the amazing advice you have given! I have a quick question regarding offsets and tax deductability.

My loan set up is the following
IP1 Loan A - fixed with no offset
IP2 Loan B - fixed with no offset
IP3 Loan C - Variable with 100% offset

All the incoming and outgoings relating to the 3 IP's (i.e. rent, bills, loan repayments etc) are coming from the one offset account linked to Loan C, as the bank doesn't allow separate accounts per loan (ING).

Right now I have about $140K in the offset account. If I use some of that money to buy shares, will the interest for Loan C be still tax deductible?

Thank you

 

The offset is just a savings account and doesn't change the deductibility of the loan in any way.

 

Or another way... The nature and source of the money in the offset can come from selling crack or stolen money or savings. Does not matter. The nature of the original borrowing is the test and the money in the offset just reduces it

 

Or
You could withdraw the offset money to buy drugs or a used toilet, yet still claim the interest on the loan.

 

Has datto hacked your pc account Terry?

 

Haha.

Last week, we bought a new car, paid cash from an Offset (holding personal funds) linked to an IP loan.

The interest on the “car loan“ is tax deductible. You beauty!!!!

 

I suppose it makes sense I just would have thought the ATO would follow the money trail and point to the use of the $300k for the PPOR a nod therefore not deductible...

 

The ATO would follow the money trail. Borrowed money was used to acquire the asset. Putting money into an offset account doesn't pay down the loan as the offset is a separate savings account so putting money in and pulling out doesn't directly change deductibility of interest.

 

And now that link no longer works!

 

New private ruling released today
Authorisation Number: 1052166807536 https://www.ato.gov.au/law/view/document?docid=EV/1052166807536

Taxpayer had a IP with Interest only loan which was fully offset. They withdraw cash from the offset and purchased a main residence. Interest on the IP resumed and was deemed to be fully deductible.

 

I am going to try this out. Will check with my CA if this works out. Nice little trick.