cant withdraw money from Offset account for IP?

[QuickZebra]

I just turned my PPOR to IP today. I have a offset account linked to my mortgage. I use professional package which is interest only on variable rate.

The interest on the loan should be tax deductible now. I have all my income deposit to the offset account at the moment. I also withdraw money from offset account for daily expenses. Would it be a problem to claim interest as cost of IP if I keep doing that way?

In order to make the interest deductible, do I have to stop withdrawing money from offset account? If the answer is yes, I have to deposit my salary to another account. I don't know if it is worthwhile because I get higher interest without salary in offset. Or I deposit my salary to another account and reserve some money for daily expenses, then transfer the rest of money to offset.

Any suggestion would be highly appreciated. Thanks.

 

[shuggy]

Your offset account is a savings account linked to your loan which 'offsets' the interest payable in return for not paying you any interest on your savings. Withdrawing funds from it does not effect deductability of your loan as they are your own private savings. I think you are confusing the idea of withdrawing funds from a LOC for daily expenses. I'm sure someone will be able to explain better.

 

[agent007]

I just turned my PPOR to IP today. I have a offset account linked to my mortgage. I use professional package which is interest only on variable rate.

The interest on the loan should be tax deductible now. I have all my income deposit to the offset account at the moment. I also withdraw money from offset account for daily expenses. Would it be a problem to claim interest as cost of IP if I keep doing that way?

In order to make the interest deductible, do I have to stop withdrawing money from offset account? If the answer is yes, I have to deposit my salary to another account. I don't know if it is worthwhile because I get higher interest without salary in offset. Or I deposit my salary to another account and reserve some money for daily expenses, then transfer the rest of money to offset.

Any suggestion would be highly appreciated. Thanks.

Keep accounts for personal use and private use separately. It doesn't matter if they are offset or LOC just keep them separately. They both can be offsetting the same security. Otherwiese, it will be messy and the ATO doesn't like messy account but, clear cuts.

 

[Pushka]

The offset account has nothing to do with the loan account. It is simply linked by the Bank to reduce your interest payable. Putting money into and out off the loan account is not ok. It is fine to withdraw funds from your offset account.

 

[Rolf Latham]

The one caveat is that there are no borrowed funds in the offset !

With some lenders its the only way to get something resembling a LOC

ta
rolf

 

[Mal P]

Rolf - really, no borrowed funds in the off-set? Why would that make a difference? If you borrowed from one lender you're paying interest on it, and then putting it into the off-set you're reducing interest right, so all works out neutral if the rates are the same?

 

[Thrawn]

really, no borrowed funds in the off-set? Why would that make a difference?

From the perspective of the bank(s), it makes no difference. From ATO's perspective, may be a big difference !

If you have $50k of borrowed money + $50k of your own money in an offset.. there is no way to take out just that $50k borrowed money only for an investment purpose. There is also no way to take out just 'your own money' to pay for life's expenses.

 

[Mal P]

Ok, so I would just need to make sure I have two off-set accounts linked to the same loan? One to keep the borrowed funds (until I need to use them for a deposit) and the other to keep my savings?

 

[Pushka]

Ok, so I would just need to make sure I have two off-set accounts linked to the same loan? One to keep the borrowed funds (until I need to use them for a deposit) and the other to keep my savings?

Yup, and only take money from the offset that has no borrowed funds in it, otherwise you contaminate it.