Correct Offset Structure

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From: M D


Hi Dale,

Can you please advise if it is ok to have offset account on an IP from the ATO's pt of view? I know there have been numerous feedbacks about how offset works on this forum but I think they mostly focused on offsets on PPORs....To be sure,I like to know if an offset on my IP will cause problems with ATO?

We are thinking of setting up an offset a/c against an IP and when we sell our home which has been paid off, the proceeds will be parked in this offset while we find another PPOR. My IP loan is 114000. Cash from the sale will be about 150000. This means the length of time the cash stays in the offset, no interest is charged for this IP for the duration. When we take out the cash, the interest will revert to normal. Does doing the above affect this IP's normal tax deductibility in any way? I am thinking , it should be fine. Can you please confirm? Thank you very much.

May
 
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Reply: 2
From: Mike .


Hi May,

Dale will probably answer your question a little better but my view is that the ATO will smile with glee that you are setting up an offset account against your IP. The reason is that the interest charge is reduced which increses your overall tax liability. The ATO never stop people paying more tax than is necessary.

They do kick up a fuss, however, if you capitalise the interest, ie interest on interest, because this scheme reduces tax payable. But that is a different matter altogether than what you are proposing.

Regards, Mike
 
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Reply: 2.1
From: Gordon Austin


Thanks for the great explanation Mike. I was aware of the ATO ruling on this but it wasn't totally clear why. It all seems so simple now after having seen you explanation.

Gordon
 
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Reply: 2.1.1
From: Dale Gatherum-Goss


Hi

Yes, the structure is fine.

Dale
 
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Reply: 2.1.1.1
From: M D


Hi Rolf, Mike, Dale & All,

I am so glad to be able to rely on you guys for sound advices. Thanks much for the confirmation.

May
 
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