Loan setup: equity loan with offset account for future IP

Hi,
I wouldn't mind comments on my loan setup.
I didn't want cross- collaterisation like my bank suggested and came up with this:
1st loan:
Secured against the investment property 80% value (approx. $320k and disbursed at settlement). *
*
2nd loan
Secured against our home equity for the amount of $158k . *This loan will be used to pay 20% value of the investment property ($78k) *the stamp duty ($12k), *and legal fees etc. (approx. $1k). After settlement we will use approx. another $2k to do a few things to the investment property (backyard needs landscaping/turfing, carpets professionally cleaned/etc). This would leave approx. $65k ready for a deposit in the future to purchase a second investment property and/or rainy day fund.*

We are hoping that by setting it up this way we don't have cross collateralisation which will help us if we want to purchase/sell even more investment properties in the future. Both loans are set up on interest only.*

My concern is the 2nd loan which was initially disbursed into our everyday savings account. *Within 24hrs we transferred all the money as follows: $108k now parked in an new offset account waiting for settlement when we will then use most of it and $50k which I transferred *back on loan (ready for redraw if needed or for a 2nd investment property in the future). My worry is the initial transfer into our everyday saving account but I hope that so long as I keep records for every transaction and show that the loan money has only be use for the investment property the interest for this loan will all still be *tax deductible?*

Also after settlement should I move any remaining money in the offset back to the loan or just leave *it in the offset account?*
 
Hiya

Structure seems fine.

Only comment is that the potential "rainy day" fund prob should be set up as a separate loan split just in case you do end up using it for a non deductible "rainy day" purpose.

I'd also park the equity release back into the loan account to redraw for your IP later - rather than park the money in an offset.

Cheers

Jamie
 
My concern is the 2nd loan which was initially disbursed into our everyday savings account. *Within 24hrs we transferred all the money as follows: $108k now parked in an new offset account waiting for settlement when we will then use most of it and $50k which I transferred *back on loan (ready for redraw if needed or for a 2nd investment property in the future). My worry is the initial transfer into our everyday saving account but I hope that so long as I keep records for every transaction and show that the loan money has only be use for the investment property the interest for this loan will all still be *tax deductible?*

Also after settlement should I move any remaining money in the offset back to the loan or just leave *it in the offset account?*

As a tax lawyer all I can say is 'ouch'! A costly mistake has been made.

Did your everyday savings account have cash in it? If so how could you say you transferred the borrowed money and not the cash?
 
Hiya

Structure seems fine.

Only comment is that the potential "rainy day" fund prob should be set up as a separate loan split just in case you do end up using it for a non deductible "rainy day" purpose.

I'd also park the equity release back into the loan account to redraw for your IP later - rather than park the money in an offset.

Cheers

Jamie

The plan would be to split the loan in the future if really needed. Thanks I will look at transferring remaining funds back to loan.
 
As a tax lawyer all I can say is 'ouch'! A costly mistake has been made.

Did your everyday savings account have cash in it? If so how could you say you transferred the borrowed money and not the cash?

Our everyday account only had $758.64 when the $158k went into account in 4 separate transactions ($78k, $50k, $10k, & $20k bank allocation of the loan money). I transferred the money out exactly in those same amounts. No other transactions occurred between them going in and going out so the balance in the savings account at the end was still $758.64. Is this enough evidence for tax purposes?
 
Our everyday account sadly only had $758.64 when the $158k went into account in 4 separate transactions ($78k, $50k, $10k, & $20k bank allocation of the loan money). I transferred the money out exactly in those same amounts. No other transactions occurred between them going in and going out so the balance in the savings account at the end was still $758.64. Is this enough evidence for tax purposes?

Take 758.64mil of orange juice. Pour in 158k of milk. Wait just 24 seconds and then extract the 158ml of milk - can you say this is just milk?

But you are lucky that you only had $758 in the account. This is a very small percentage of $158k.
 
Take 758.64mil of orange juice. Pour in 158k of milk. Wait just 24 seconds and then extract the 158ml of milk - can you say this is just milk?

But you are lucky that you only had $758 in the account. This is a very small percentage of $158k.

Quick question.

I know ur saying the funds are now mixed.

But does it really matter if the funds is Only used for investment IP purposes, and therefore is this still fully tax deductible?

Regards,
K
 
Quick question.

I know ur saying the funds are now mixed.

But does it really matter if the funds is Only used for investment IP purposes, and therefore is this still fully tax deductible?

Regards,
K

Even if both loans relate to investment properties it will still matter as you have mixed the borrowings with cash. So only a certain % of the interest could deductible - at best.
 
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