Why using a offset for a equity-out may fail

I see mistakes with equity-outs a LOT.

Common errors

• The equity out should be a new split not an addition to a existing loan. Doing this will blend the loan sinec deductibility is based on loan USE, not what the loan security is. ie Property A and Property B are one loan. People tell me that easy we can work out % and Y%. Yes you can. But will it remain that % and what happens when you sell one ?
• The new advance is credit to a offset and blended with other money.
• The eventual use of the new borrowing (from offset) is a lesser amount to the new advance. The remainer will be used for another property maybe. Two issues are created by this. 1. The loan is not 100% deductible and 2. The new equity out is really blended and has three elements. A mess.
• New borrowing get parked into saving

Every case is diferent and some can be fixed, some cant. getting it right is important as a life of deductions could be impacted

I constantly see borrowers who were told by a broker its easier, faster etc to have one loan account, not two. Find a better broker.

 

Thanks for above. But if the split loan is paid off with minimal amount left say $1K, so as not to close off the loan, can it be then used for another investment without any tax issues?

 

I've seen people recommended consolidation of Investment Loan into PPOR loan for 'convenience' of having one loan, typically by bankers.

People also stuff this up with their redraw more often than not.

Anyway, good points to be aware of, worth reading the below as well;
Tax Tip 323: Is it Use or Purpose of Loan that Counts for Deductibility of Interest?
Tax Tip 285: Redrawing money is borrowing
Tax Tip 3: Mixing Loans - Don’t do it

 

Not the same purpose as the other ? So its blended. My suggestion would be pay insurance or rates for the property in question to absorb the $1K. Or repay to loan.
Otherwise you will be splitting deductions x% / Y% forwever. And invaliable if Y is sold then the portion of that loan that was X% stops being deductible.
And poor practices probably mean the boprrower will do this again. Many years later ATO review it and its a problem

I saw a $800 cost paid from the wrong loan (private home) and ATO denied the X% interest deduction. It was under 1% and they wanted a few years amended. If they cant determine how the deductible was adjusted they can deny the deduction and allow the taxpayer to object / appeal. Borrowing money doesnt mean its deductible. Using the borrowed money for a proper purpose gives deductibility.

 

Thank you for clarifying, would probably repay to loan.
For now just sitting as extra cash or buffers so have not mixed. But agree would have to bring the 100% loan back for investing from X to Y!
I only use my borrowing so far for investment purposes only, never for private use.