Why have an offset if investing funds?

Discussion in 'Accounting & Tax' started by costanza, 27th Feb, 2021.

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  1. costanza

    costanza Well-Known Member

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    For your PPOR, what is the benefit of having an offset account vs debt recycling via loan splits?

    For example if you are an OO, and have a P&I loan, wouldn't it just be better to create multiple loan splits, and pay down the splits? Eg if you create 3 loan splits:
    - You could 'park' your excess cash by paying down each of these splits, reducing the interest paid on the entire loan (same as if you had the money in the offset account)
    - Then redraw split A to invest in shares, now being able to deduct interest
    - Redraw split B for a deposit on an IP, also being able to deduct interest
    - Redraw split C in case of an emergency fund for personal use, ofcourse this wouldn't be deductible, but gives you the same functionality as if it was in an offset account right? And the flexibility to use it for investment as well rather than for personal use.

    What am I missing?
     
  2. Terry_w

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

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    Not all need an offset.

    But without one it can cause contamination of the loan and some might end up renting the main residence out.
     
  3. costanza

    costanza Well-Known Member

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    If you end up renting out your PPOR, doesn't the deductibility remain? In my example above, split A, B are used for investment, then they should continue to be deductible. And lets call "D" the remaining loan in your PPOR, if you rent it out then doesn't that also become deductible?
     
  4. Terry_w

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

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    Not if it's all mixed only part of D could be deductible
     
  5. costanza

    costanza Well-Known Member

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    I don't quite understand, could you elaborate?
     
  6. Terry_w

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

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    If you pay money into a loan and redraw for use for something other than that property the loan will be a mixed use loan
     

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