Ensuring tax deductability on funds for IP.

[aidanq]

Hi there,
I currently have cash in an account that is 100% offset against my PPOR, that I'd potentially like to use as deposit & purchasing costs. So if I use these funds, I have an increased interest bill on my PPOR.

However, I'd like to ensure that if I do so, these funds are treated as funds borrowed for IP purchasing purposes and have the corresponding interest tax deductable. Is there any particular way that this must be done to satisfy the ATO ?

TIA,
aidan

[Rickardo]

Hi there,
I currently have cash in an account that is 100% offset against my PPOR, that I'd potentially like to use as deposit & purchasing costs. So if I use these funds, I have an increased interest bill on my PPOR.

However, I'd like to ensure that if I do so, these funds are treated as funds borrowed for IP purchasing purposes and have the corresponding interest tax deductable. Is there any particular way that this must be done to satisfy the ATO ?

TIA,
aidan

Hi aidanq,

If you simply pull cash out of an offset account and use it for deposit and purchasing costs, then you aren't actually borrowing any funds and therefore there will be no interest tax deduction. There is an opportunity cost, being that if you left the funds in there you would reduce the interest on your PPOR mortgage, but simply taking out the cash wont allow you to claim the extra interest you must pay as a tax deduction.

The clearest way to show the ATO that you are using money to fund an IP purchase would be to set up a separate line of credit (LOC) account on your PPOR mortgage (if you have enough equity) and then draw out these funds to use as deposit and purchasing costs. I would recommend setting up a separate LOC for your investments as this makes it much easier to distinguish what is and isn't deductable come tax time.

This way you still have the actual cash in your offset account, which is helping to decrease the interest on the non deductable PPOR debt, and you now have a separate investment LOC which will be fully tax deductable. One strategy is to maximise the payment of non deductable debt first, and pay interest only on the investment LOC until all your non deductable debt is cleared, this will provide you with the greatest tax advantages.

[DaleGG]

Hi

I would agree with Rick in that the use of the offset account would not crystallise a tax deduction for the increased interest on the PPOR loan.

Can I suggest however, that if you take the funds from the offset account and then pay them into the pPOR loan, then, borrow that same money against your PPOR the interest on the redrawn amount would be tax deductible.

Dale

Hi there,
I currently have cash in an account that is 100% offset against my PPOR, that I'd potentially like to use as deposit & purchasing costs. So if I use these funds, I have an increased interest bill on my PPOR.

However, I'd like to ensure that if I do so, these funds are treated as funds borrowed for IP purchasing purposes and have the corresponding interest tax deductable. Is there any particular way that this must be done to satisfy the ATO ?

TIA,
aidan

[aidanq]

thx Dale, Rick, that's helped heaps !

aidan