Is my loan now contaminated? (have I lost deductibility?)

[Propagate]

Any tax experts shed some light on this for me?

I have three loans, (2 against PPOR and 1 against IP) as follows:-

MacQ - Loan 1 - 80% against PPOR - Purpose PPOR
MacQ - Loan 2 - $50k secured on PPOR - purpose IP1 - DEDUCTIBLE
ME Bank - Loan 3 - 95% IP, secured against IP. - DEDUCTIBLE

The IP has gone up in value enough to recycle the initial deposit. My plan was a new split loan against the IP to release $50k, that $50k to pay direct back to loan 2 which is secured against the PPOR but the purpose was for the IP. That would leave:-

MacQ - Loan 1 - Unchanged
MacQ - Loan 2 - PAID OUT, balance zero
ME Bank - Loan 3 - Unchanged - DEDUCTIBLE
ME Bank - New Loan 4 - $50k secured against IP, paid out original loan 2 - DEDUCTIBLE

Basically, I;d end up with the same loan amount only all security now against the IP that the loans originally purchased, maintaining deductibility.

Now, what has happened is this...

Loan 1 & 2 are with the same bank, Macquarie.. Loan 1 has an offset attached (that all our regular banking and wages etc are used for).

When the new loan was disbursed i was asked by ME Bank where it was to be paid to and I gave the account details for loan 2. I have double checked this and it is correct.

The loan was disbursed yesterday, but it has been paid into the offset account instead!!! This account has a completely difference account number but it is the account that we pay the interest to ME Bank from on the original loan 2.

So, I don't know if ME Bank have stuffed up and paid into the account they already had on file for interest payment debits, or if Macquarie have somehow stuffed up and put the received disbursement into the wrong account (even though they have different account numbers).

No one is available until Monday.

My question is, if I take the disbursement form the offset and pay off Loan 2 as intended, does that mean I've contaminated the funds and lost deductibility? I am able to trace the funds by way of statements, so it can be demonstrated to ATO the money trail but I'm not sure this is OK?

If not, and now of the banks have cocked up, then I'll have to pay the disbursement back to ME Bank and start again, making sure they pay out into the correct account number.

If I've lost deductibility it's going to cost me an extra $80 per month in tax. May not seem a lot, but it adds up over the life of a loan.

Cheers.

 

[Propagate]

I've managed to login to ME Bank on-line banking, it's their fault. They have paid it into the account I pay them from and not into the loan account number I gave them, (which THEY requested) for disbursement.

 

[Terry_w]

Yes there is a problem.

The $50k loan interest is now not deductible. You have borrowed to invest into a savings account mixing the borrowed money with cash.

It is not a contamination issue as all loans are separate. So what you could do is to pay $50,000 into the new loan (make sure this won't close it first) and then redraw straight from this loan into the Macq $50k loan.

Make sure you get specific tax advice before doing this as I am only going on what I think you mean in your post.

 

[Propagate]

Yes there is a problem.

The $50k loan interest is now not deductible. You have borrowed to invest into a savings account mixing the borrowed money with cash.

It is not a contamination issue as all loans are separate. So what you could do is to pay $50,000 into the new loan (make sure this won't close it first) and then redraw straight from this loan into the Macq $50k loan.

Make sure you get specific tax advice before doing this as I am only going on what I think you mean in your post.

Thanks Terry, I figured that was the case.

I've been on to ME Bank to find out what happened, she was unable to see into the e-mail chains to see why the correct account wasn't used, it has to wait until Monday.

She said it was too late to recall the funds, it's all cleared but she basically said as you have, pay back the loan in full and then have it re-drawn to the correct account.

Would the loan need a new account/loan number then? Does it mater that it paid out to "savings", then gets paid off, then basically gets re-drawn again for IP investment?

Cheers.

 

[Terry_w]

Thanks Terry, I figured that was the case.

I've been on to ME Bank to find out what happened, she was unable to see into the e-mail chains to see why the correct account wasn't used, it has to wait until Monday.

She said it was too late to recall the funds, it's all cleared but she basically said as you have, pay back the loan in full and then have it re-drawn to the correct account.

Would the loan need a new account/loan number then? Does it mater that it paid out to "savings", then gets paid off, then basically gets re-drawn again for IP investment?

Cheers.

Don't take tax advice from a bank!

No need for new loan numbers.

 

[Propagate]

Don't take tax advice from a bank!

No need for new loan numbers.

...especially one that can't send money to the right account in the first place

Thanks Terry.