Using Redraw Instead of an Offset Account?

Discussion in 'Accounting & Tax' started by db9, 13th Apr, 2017.

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  1. db9

    db9 Well-Known Member

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    Hello,

    I have read through lots of posts here (a lot from Terry) about the advantages of an offset account over a redraw but am trying to make sense of how it all applies to me.

    I am signing up for a loan for my first investment property that does not have an offset account and instead has a redraw account. I was planning on getting a loan with an offset account but can't get this done due to a short settlement date (limited choice of lenders).

    After settlement I will have a reasonable amount of cash ready for my next deposit. My broker has suggested to leave this money aside and refinance a few months after settlement to a loan with an offset account.

    I plan on using this cash to buy another investment property next year. If I have read and understood correctly, if this money went straight into another investment property loan my deductions would not change (provided the interest rate was the same in the new loan). I will likely need all of this money as a deposit for my next property as my biggest challenge seems to be serviceability. I just don't want to over complicate things unnecessarily by refinancing just for the sake of an offset account and then accessing the cash soon after if it won't make a difference to me. So I was thinking of just parking this cash in to he loan and redraw when I'm buying again.

    I am renting and don't own a PPOR.

    Anyone have any quick comments? Have I overlooked anything - Tax related or other?

    I know there's heaps of posts on this so I don't mind if you move along or point me towards where to check.

    Cheers
     
  2. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    Ideally you would borrow the lot without paying down the loan.

    But since you are going to use the cash anyway paying down this loan and later redrawing it may not be such a bad idea.

    The problem may be how to you redraw so the interest remains deductible. can you pay third parties directly from the loan account?
     
    Colin Rice likes this.
  3. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    Im not a tax accountant, cant see any issues here though since contamination of investment debt due to personal non ded lending looks to be limited

    ta
    olf
     
  4. db9

    db9 Well-Known Member

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    I don't think think I can i can pay 3rd parties directly. I see what you're saying though - need to ensure no mixing of funds and traceability.
     
    Terry_w likes this.
  5. db9

    db9 Well-Known Member

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    Thank you for your comments Terry and Rolf. I have decided to be a bit more bold and aim to refinance to a lender or product that will give me an offset account in a few months time.
     
    Terry_w likes this.