is this ok? IP with transaction account, offset

Hi guys

could you pls advise the following?

both PPOR and IP are with the same bank

PPOR has an offset account.

1 IP IO, does not has offset account, linked with PPOR offset account (rent comes back to the offset account, IP interest deducted from the offest account as well)

did not feel right

so opened a transaction account to link with the IP loan, thus rent will go to the transaction account, IP interest will be deducted from the transaction account. the purpose of such arrangement is to separate PPOR from IP transaction.

is this arrangement OK in terms of taxation?

regards
 
Finance guru's will be along shortly but I would say you had it set up correctly with any excess funds in the offset for the PPOR thus reducing interest on non-deductible debt (PPOR). Transactions in and out of the offset do not introduce any tax implications as your not transacting in the loan accounts as you would be if using redraws etc.

Only thing they may add is that the PPOR should also be IO if it is not already but this takes a bit to get your head around at first and takes some level of self control to have achieve the some objectives as P&I.
 
Hi guys

could you pls advise the following?

both PPOR and IP are with the same bank

PPOR has an offset account.

1 IP IO, does not has offset account, linked with PPOR offset account (rent comes back to the offset account, IP interest deducted from the offest account as well)

did not feel right

so opened a transaction account to link with the IP loan, thus rent will go to the transaction account, IP interest will be deducted from the transaction account. the purpose of such arrangement is to separate PPOR from IP transaction.

is this arrangement OK in terms of taxation?

regards

What is not right about it? I would not do it your way but the way proposed, otherwise you will be paying more tax.
 
Hi Terry, the reason why took such approach was that Not to mix PPOR loan repayment with IP loan repayment. setting up the transaction account was to completed separate the PPOR and IP.

could you pls explain a bit more about "could paying more tax"?

cheers
 
Hi Terry, the reason why took such approach was that Not to mix PPOR loan repayment with IP loan repayment. setting up the transaction account was to completed separate the PPOR and IP.

could you pls explain a bit more about "could paying more tax"?

cheers

Hi Eric

The offset account is just a savings account with cash. the origin of the cash doesn't matter. Whether it is rent or wages you don't need to segregate it.

By keeping cash in the investment offset you are reducing the interest payable on this loan = less deductions.

At the same time you have diveret funds from the PPOR offset and you will therefore pay more interest on this loan = Not deductible.
 
thanks Terry,

I might have not explained myself properly.

the newly opened transaction account is not a offset account, it is only a transaction/saving account, the interest from the IP is deducted from the offset account, and rent will be deposited to. The fund in the transaction is unable to offeset the loan amount in the IP loan. and you are right that I have T/F some funds (under $1000) from PPOR to the transaction account, which is not most tax effective.
 
Rent money is income. There's no problem if you mix it with your personal salary.

It's not a problem to put all of your income and your rent into an offset account against your PPOR, then to have the repayments for all your loans come out of that same account. This is very common place.

It's also significantly more cost effective than running rents and repayments through a separate account just for IPs.
 
thanks Terry,

I might have not explained myself properly.

the newly opened transaction account is not a offset account, it is only a transaction/saving account, the interest from the IP is deducted from the offset account, and rent will be deposited to. The fund in the transaction is unable to offeset the loan amount in the IP loan. and you are right that I have T/F some funds (under $1000) from PPOR to the transaction account, which is not most tax effective.

This doesn't change anything in my answer above.
 
thanks Terry,

I might have not explained myself properly.

the newly opened transaction account is not a offset account, it is only a transaction/saving account, the interest from the IP is deducted from the offset account, and rent will be deposited to. The fund in the transaction is unable to offeset the loan amount in the IP loan. and you are right that I have T/F some funds (under $1000) from PPOR to the transaction account, which is not most tax effective.

You are just making this way too complex for yourself, when in fact it is very simple:

PPOR = no tax benefit
IP = Tax benefit

So you should

Put all your salary and rental income into your offset account linked with your PPOR = reduce as much interest as possible.

Leave your IP's loan amount as it is = max interest you can claim


Have all your repayment come out from your offset = easier to manage

Now you worry about mixing it up and taxation etc:

Each of your home loan account should show you how much interest you've paid YTD, and depending if you are managing the IP yourself or by agent, there should be a ledger recording all rental income and you should save up all the bills you paid for IP. So when it comes to tax time you have all the paper work in front of you.

This way you are not confusing yourself which one is which........
 
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