A
Anonymous
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From: Anonymous
Hi everyone,
I've been reading this forum for a while now, and was very interested in the previous posts regarding some of the tax advantages in using an offset account. In particular, I was interested in the strategy of using an interest only loan with an offset account for one's PPOR. Then, when you decided to upgrade and buy a new PPOR, but also want to keep the 1st one as an IP, you can take the money out of the offset account and use that for your deposit. However, the money still remaining in the interest only loan will now be fully tax deductible as this is now an IP. I was interested in using this strategy for my own situation and was about to re-finance from my P&I loan to an offset account on an IO loan.
However, today I went to see an accountant just to make sure this was legitimate. He's pretty well educated ( has a B.Com, MComm, CPA and FTIA) and evidently has a lot over 20 years experience with IPs (owning several of his own too).
This accountant told me that the above strategy is absolutely NOT legitimate. He told me that since money in the offset account IS effectively reducing the balance upon which the interest is calculated, then that money is effectively diluting the tax deductible proportion of the loan. Not only that, but since the bank treats the money in the offset account in this way, then effectively you CANNOT separate money in the offset account from the home loan in the eyes of the ATO.
A lot of people on this forum have said that offset accounts are a great way to "park" extra funds and so reduce the interest payable on an IP loan, but allowing you the flexibility to withdraw the money later on without effectively reducing the tax deductible portion of your loan. It sounds like having your cake and eating it too which, as this accountant today pointed out to me, the ATO is not dumb enough to let you get away with.
So who is correct? And if you believe in the tax benefits of offset accounts, can you point me to any tax laws etc that would back that up?
Cheers
Anon
Hi everyone,
I've been reading this forum for a while now, and was very interested in the previous posts regarding some of the tax advantages in using an offset account. In particular, I was interested in the strategy of using an interest only loan with an offset account for one's PPOR. Then, when you decided to upgrade and buy a new PPOR, but also want to keep the 1st one as an IP, you can take the money out of the offset account and use that for your deposit. However, the money still remaining in the interest only loan will now be fully tax deductible as this is now an IP. I was interested in using this strategy for my own situation and was about to re-finance from my P&I loan to an offset account on an IO loan.
However, today I went to see an accountant just to make sure this was legitimate. He's pretty well educated ( has a B.Com, MComm, CPA and FTIA) and evidently has a lot over 20 years experience with IPs (owning several of his own too).
This accountant told me that the above strategy is absolutely NOT legitimate. He told me that since money in the offset account IS effectively reducing the balance upon which the interest is calculated, then that money is effectively diluting the tax deductible proportion of the loan. Not only that, but since the bank treats the money in the offset account in this way, then effectively you CANNOT separate money in the offset account from the home loan in the eyes of the ATO.
A lot of people on this forum have said that offset accounts are a great way to "park" extra funds and so reduce the interest payable on an IP loan, but allowing you the flexibility to withdraw the money later on without effectively reducing the tax deductible portion of your loan. It sounds like having your cake and eating it too which, as this accountant today pointed out to me, the ATO is not dumb enough to let you get away with.
So who is correct? And if you believe in the tax benefits of offset accounts, can you point me to any tax laws etc that would back that up?
Cheers
Anon
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