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Which account to use for what?

Discussion in 'Accounting & Tax' started by Jmillar, 11th Feb, 2016.

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  1. Jmillar

    Jmillar Well-Known Member

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    Hi guys,

    I have an offset account with WBC with savings in it, and also have an offset with ANZ with borrowed funds in it.

    I currently use WBC savings account to collect salary, pay all private and property expenses, pay off credit card automatically each month etc etc.

    My Accountant is telling me I can only use the borrowed funds for investment purposes.

    2 Questions:
    1) He says I can use them for investment purposes, not that I should. So should I use the borrowed funds for investment purposes? If yes, why should I be using borrowed funds rather than savings?
    2) I'm not 100% clear on what 'investment purposes' includes. Does it include all of the below?
    - Deposits for properties
    - Payment of interest
    - Maintenance items
    - Landlord/building insurance
    - Council/water rates
    - Building and pest inspections?
    - Buyers agents fees?
    3) If I pay 'investment expenses' on a credit card, and then that card is paid off from the offset with borrowed funds, is that just as good as paying the expenses directly from the offset (for tax purposes)? Obviously doing this way just means I can use the bank's money for a month, and earn points etc.

    For clarity, both offset accounts are 100% offsets against a similar interest rate so push that aside for the time being...

    Cheers
     
  2. Digitalism

    Digitalism Active Member

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  3. Digitalism

    Digitalism Active Member

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  4. Jmillar

    Jmillar Well-Known Member

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    Thanks, that confirmed what i thought about keeping savings + borrowed funds separately, and not using borrowed funds to pay personal expenses.

    If anyone could provide further clarity on my above questions that would be great.

    Cheers
     
  5. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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  6. Jmillar

    Jmillar Well-Known Member

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    Thanks Terry, I read through those as well which were informative but I'm still unclear on the questions in my original post though..

    Any guidance would be great

    Cheers
     
  7. Jmillar

    Jmillar Well-Known Member

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    Anyone? :)
     
  8. Jess Peletier

    Jess Peletier Mortgage Broker - Australia Wide Business Member

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    He says I can use them for investment purposes, not that I should. So should I use the borrowed funds for investment purposes? If yes, why should I be using borrowed funds rather than savings? Use the borrowed funds, that way your cash is kept for any non-investment use stuff like a new PPOR.
    2) I'm not 100% clear on what 'investment purposes' includes. Does it include all of the below?
    - Deposits for properties
    - Payment of interest
    - Maintenance items
    - Landlord/building insurance
    - Council/water rates
    - Building and pest inspections?
    - Buyers agents fees?
    I would suggest all those things are investment purposes - the only one I'm not sure on is the BA's fees. But I'd assume that is too. You want to be careful paying interest with borrowed funds - get proper advice.
    3) If I pay 'investment expenses' on a credit card, and then that card is paid off from the offset with borrowed funds, is that just as good as paying the expenses directly from the offset (for tax purposes)? Obviously doing this way just means I can use the bank's money for a month, and earn points etc.
    Yes, all good but you need to be sure that the CC has no personal expenditure on it or it's a mixed purpose loan.
     
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  9. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    1. You might benefit from borrowing to pay expenses, especially where you have non deductible debt, or not own a main residence. This is because investment debt interest is generally deductible.


    2. Borrow to produce income. So any investment related expenses, other than interest, could potentially be borrowed. Even interest may be paid with borrowed money in limited situations.


    3. A credit card is a loan facility. So if you had a loan for an investment expense, and this loan was a ‘credit card’ facility the debt could be refinanced by borrowing elsewhere and repaying the credit card debt.

    But all the usual risks apply such as ending up with a mixed purpose loan. See my tip on credit cards.
     
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  10. Daniel Taborsky

    Daniel Taborsky Well-Known Member Premium Member

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    Assuming the BA was successful and the property purchased was for investment purposes, then you should be able to deduct interest on borrowed funds used to pay the BA fees. This doesn't mean that the BA fees are tax deductible - generally they would form part of the cost base of the property which was purchased.
     
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  11. Jmillar

    Jmillar Well-Known Member

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    Thanks everyone for your answers - much appreciated.

    Thanks Terry - from now on I'll pay maintenance/insurance/rates from borrowings instead of cash.

    Would you say that BA fees can be paid from borrowings as well? I know that BA fees aren't deductible as they are associated with purchasing properties, not maintaining them - but does this mean they can't be paid with borrowings?

    Also, I have some property portfolio review + consultation fees - I'm guessing this is fine to be deductible and to be paid from borrowings?

    When you say interest may be paid with borrowed money in limited situations - just wondering what situations it would be acceptable in? Does this mean I should be using cash to pay interest? It is currently set up to come out of borrowings (the first payment is due next week).

    My accountant is away for a couple weeks unfortunately and I have a few bills coming in so want to make sure I'm paying them from the right accounts!!

    Cheers
     
  12. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Yes u can borrow to pay ba fees.

    Interest can be capitalised as long as it is not a scheme to gain increased tax deductions. You can read my tax tipd on this.

    Dont do this without tax advice.
     
  13. Paul@PFI

    Paul@PFI Tax Accounting + SMSF Business Member

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    Be wary of paying loan interest on a new loan ie capitalised so that interest compounds. Short term (ie job loss, maternity etc) it may work but where the intention is to ramp up deductible debt there can be a Part IVA anti-avoidance concern. If thats the case the ATO can just deny the deduction in full and allow you to appeal.