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Using Offset account to buy IP to get maximum tax benefit

Discussion in 'Accounting & Tax' started by kanad, 15th Nov, 2015.

  1. kanad

    kanad New Member

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    I have read the thread on offset account but still remain confused.

    In the beginning of the year I refinanced my PPOR mortgage from Bank A to Bank B. This released some equity from the house and I have 2 loan accounts established.

    Loan Account 1 (240K) was P&I with 2 offset accounts Account 1 and Account 2. Account 1 (20K) is where I deposit my wage and use for paying bills, shopping etc. From Account 2 (220K) the only debit is an auto debit to a credit card with 0% balance transfer offer which I got. I have paid some interest on Loan 1 this year. I have recently changed this to IO (effective from December) as I have achieved account 1 + account 2 balance > Loan Account 1 remaining balance.

    Loan Account 2 (150K) was set up as IO with a corresponding offset account Account 3 with 150k balance. I haven't paid any interest on this.

    I am now looking to buy an IP. If I withdraw money from Account 3 to pay for deposit, LMI, stamp duty, legal fees etc. will the interest charged on account 3 be tax deductible.

    Complicating the thing is all loans, account and the PPOR title is jointly owned with my wife. Due to some unfortunate health issues she is unlikely to work any time soon in future and I am in the second highest tax bracket. What is the most tax effective way for me to buy the IP.

    I am thinking of buying the IP in only my name on title.
     
  2. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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  3. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Where did the funds in account 3 come from?
     
  4. kanad

    kanad New Member

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    Bank B valued the house at 550k.The loan balance remaining at bank A was about 250k which was paid off by refinance. Bank B split the loan into two 250k P&I and 150K IO.

    I also had offset account in bank A (240K) and transferred that money to Bank B Account 2 after the settlement.
    The original loan I took from Bank A was 323 K.
     
  5. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    hard to follow that - but it sounds like you borrowed money to park in an offset account.

    If that is the case and if you subsequently use those funds for buying a new main residence then the interest on the loan will not be deductible.

    Even if you used the offset account to invest you may run into problems. see Tax Tip 1: Parking borrowed money in an offset account