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Using offset account to pay IP expenses

Discussion in 'Accounting & Tax' started by cherubym, 26th Apr, 2016.

  1. cherubym

    cherubym Well-Known Member

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    I'm wondering if I could pay some IP-related repair expenses via an offset account attached to IP loan.

    All related to investment, so no contamination so far
    Debit card > Offset 1 > IP Loan 1
    Offset 2 > IP Loan 2

    Offset 1 has no many left. Offset 2 has some money left. Can I transfer some money from offset 2 to offset 1 and use debit card to pay for repair expenses? Does it affect tax-deductibility?

    Thanks heaps!
     
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  2. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    An offset is a savings account so no borrowings would happen if you did this so the answer is no.
     
  3. cherubym

    cherubym Well-Known Member

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    Offset is attached to the loan, part of which was used for investment purpose. Initially, no interest occurred on the loan because there is 10k available in offset 1 and loan split has 10k. As I used up, for rates and bills, now that offset with debit card only has zero dollar balance in it and interest will occur on the loan split for 10k. Am I missing something?
     
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  4. Marg4000

    Marg4000 Well-Known Member

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    As Terry said, an offset account is a savings account. It does not matter where the money comes from, any expenditure is not borrowing. Of course, as the offset balance reduces, the loan it is attached to will attract increased interest. If for an IP, the interest would be tax deductible.

    The money in the offset is NOT part of the loan, even if you borrowed the money to put in it.
    Marg
     
  5. cherubym

    cherubym Well-Known Member

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    This is the point. I'm only talking about IP and investment purpose only. No PPOR stuff or personal stuff included in all these setups, so no urine to contaminate.
     
  6. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    samiam likes this.
  7. Marg4000

    Marg4000 Well-Known Member

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    Once you put the money into the offset account it became personal "stuff".
    Marg
     
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  8. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Cherubym are you talking about parking borrowed money in the offset account?
     
  9. Bran

    Bran Well-Known Member

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    This doesn't make sense to me either.

    If you have a 100k loan for the purpose of investing.

    You withdraw this 100K into it's own offset account, starting with a zero balance.

    This offset account is only for withdrawals directly into your fund manager say.

    This then incurs interest proportional to those funds having been paid into your investments.

    Any interest payments to the loan are made from a completely separate account.

    How is there not a trail demonstrating the purpose of the borrowed funds?


    I've read your thread Terry, and the rulings. Whilst these are in another language, can it not be considered in the 'dual account' set up?

    Short of a line of credit, how does anyone make regular contributions to an investment using borrowed funds? (And the answer cannot be a line of credit, surely).

    The money is only parked until it ends up into the investment... And it's only parked because you don't want to dump 100% into the sharemarket on one day.

    Edit: I read your tax tip 1: My scenario is PROBABLY ok.
     
    Last edited: 26th Apr, 2016
  10. HUGH72

    HUGH72 Well-Known Member

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    I don't see a problem with your example either, no contamination, no mixing with personal funds or non deductible debt. Providing that the funds will be used for investing purposes only and can easily be accounted for.
     
  11. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Yes it probably will be ok. I say probably because you are not directly borrowing, but taking it on a little detour. This is why I think it best to use a IO loan that you can pay director from the loan account, or the next best a LOC with converting the LOC into a IO loan soon after it has been drawn down.
     
  12. cherubym

    cherubym Well-Known Member

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    Yes, parking money I got from the equity split. Not my own saving or any other income. Purely for the purpose of investment. As far as I know, ATO only cares about which purpose the borrowed funds are being used, not where they come from. Pls correct me if I'm wrong.
     
  13. cherubym

    cherubym Well-Known Member

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    I fail to understand why it became personal, as I haven't even used a cent for my own personal purpose from it.
     
  14. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Parking borrowed money changes everything.

    If it is pure borrowed money and not mixed then you may be able to argue that it can be traced from the loan and therefore be treated the same as a loan.

    If you transfer money from offset 1 to offset 2 you will be confusing things. Assuming both offsets only contain borrowed money it would be like borrowing from loan A to pay into loan B. You would end up with a mixed loan although the whole interest may be deductible it would have to be apportioned.

    I would advise not to set up your loans like this.
     
  15. cherubym

    cherubym Well-Known Member

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    In my case, I'll need a debit card to swipe at a physical store to buy some repair items. Then that debit card needs to attach to an offset account, hence need a little detour of borrowed money. Would you suggest any better way of being able to buy stuff in stores?
     
  16. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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  17. Marg4000

    Marg4000 Well-Known Member

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    You really need to sit down wth your accountant and discuss these issues. Failing to understand what you are doing will cause real problems for you.
    Marg
     
  18. cherubym

    cherubym Well-Known Member

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    Thanks, @Terry_w but it doesn't say anything related to debit card and offset account attached to that card. It looks like I'll need a debit card for each offset account to pay in store.
     
  19. cherubym

    cherubym Well-Known Member

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    Had a 15-min chat with my property tax accountant. He mentioned it's mainly about the tracibility. When it comes to audit, if I can prove that the fund used can be traced back to the loan, that'll be ok. It's all about the purpose of the use of the borrowed funds, not where it came from.
     
  20. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    a credit card is a loan facility so this may work better. But a debit card on the offset account may also work.