Tax Tip 9: Don’t use Cash in Offset account to Invest

My advice is to not take tax advice from a broker

 

Ironic you arent using Terry (who is a broker, and solicitor with excellent tax skills)....Suggestion. Get free complementary advice and use Terry.
Mortgage brokers cannot and should not give tax advice or opinions on deductibility.

eg Is the 20% and duty a seperate split ? If not it should be. The thread name should also indicate a iossie that could arise from using the offset / equity the way you describe.
Also the way you described it the equity out is after the IP settles so how could that be deductible ?

 

20% and duty is a separate split.
The question was - the equity I get out of PPOR to be able to pay 20% & duty - as this equity is going towards IP, will that be tax deductible?
Or they look at the source of equity and can't claim it as an investment expense?

 

Equity is never tax deductible

 

The question is - If I use a new borrowing to assist with 20% of the deposit and the duty on a new property is the interest on that loan deductible ?

A = Yes quite likley but some matters do need to be considered. It doesnt matter what the loan security is ie the home. It is how the borrowed money is used eg the IP. It would be critical to ensure that the new borrowing doesnt pass through a savings account, blended offset etc as well. Just because the borrowings seem to have been used it doesnt necessarily mean the USE of the borrowed $$$ is a clear issue.

 

Appreciate your response.
I have spoken to the accountant and broker and clarified below:
Current PPOR loan to be refinanced(topped up - split loan to keep $$ used for investment separate), 20% IP & duty will be paid from this and it will be tax deductible(of course only $$ used for IP, not the whole amount).
IP loan with 80% lvr.

 

@Terry_w is doing free consults ? i needed someone to refer matters to.

 

Only free for existing clients of my broking company.

 

Hi @Terry_w , I am in the process of refinancing my IP - Valuation has come back quite favorable so I would like to unlock some 'equity' from the IP and put it to good use by investing in long term equities.

So basically am considering creating a new split loan which I will use to invest, and make the interest on this split tax deductable - am I thinking about this the right way? Thank you for your time.

 

Best to seek specific tax advice.

 

Can you please elaborate in more detail on what are the differing consequences?

 

i have probably written more detail on this somewhere.
The main ones are tax, estate planning, CGT and asset proteciton.

 

I am thinking about a scenario: if a person plans to borrow to pay IP's expenses (tax tip 4). He is able to borrow extra against the same IP, in the format of a new IO loan. Then the fund is released by bank to an offset which is totally offsetting the IO loan initially.

Question is which of the following options this person shall follow or are they practically the same in terms of tax deduction?
a. use the release fund (= cash) in this IP's offset account to pay for expenses on the same IP. This refer to Terry's Tax Tip 82: Taking money from an offset account on an IP and Claiming Interest
b. pay the released fund back to the IO and then redraw from the loan account. This option has been discussed in various PC posts.

 

I would go off option b)

see my tax tip 1
Tax Tip 1: Parking borrowed money in an offset account
https://bit.ly/33l4o4c

 

Thanks Terry. For this particular scenario, I was so sure option b) is the choice that there should be no detour for borrowed money, until I read your tax tip 82..

 

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

Is about taking cash from an offset account attached to an investment loan and the deductibility of interest when the interest on the loan increases.

 

Hi Terry, the scenario I described is for IP and IP's offset. A separate new loan is borrowed against IP and money lands into a clean offset. Can borrower just use the offset money to pay expenses around this IP, and claim interest deduction because he takes money out of IP offset?

 

you said it was borrowed money?

 

yes, borrowed money and landed into an empty offset, no interest will be incurred until the person use the money in offset. The use will be solely on the same IP.

 

that is a different situation to my tip 82