Money from Tax Returns - where should it go?

Discussion in 'Accounting and Tax' started by Sandydubes, 14th Apr, 2012.

  1. Sandydubes

    Sandydubes Member

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    20th Mar, 2012
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    Melbourne
    Hi,

    SITUATION:
    I am acquiring an Investment Property (settlement due in May2012). I have taken a Fixed Rate I/O loan (@ 95% LVR) that allows advance payment of annual interest. This does not allow any extra repayment of more than 10K/year. Meaning, I cannot put my rental income (26K/year) in this loan account.

    I also have a a PPOR under which I have 2 split loans. The first is used purely for my personal income/expenses. The second split loan (with offset account) is used to make payment for deposit etc. for the Investment property. The interest on this borrowing is also tax deductible since the purpose of borrowing is to invest in Investment Property.

    QUESTIONS:
    1. I believe it is mandatory (from ATO perspective) for me to deposit my Rental incomes from the IP into my Split Loan 2 offset account (which does not mixes my personal income and expenses). Also, any expenses on IP such as rates, insurance fees, property management fees is paid out of this Split Loan 2 Offset account. Does that sound good?

    2. I am expecting a Tax Return (because of advance payment of interest) of $17K. $15K out of this is expected to be due to the advance payment of interest on the IP.

    In which account should I receive this $17K from ATO - Should it go to my PPOR Split Loan account 1 offset or PPOR Split Loan account 2 offset (which has no nexus with my personal funds).

    Regards,
    Sandy
     
  2. Rolf Latham

    Rolf Latham Member

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    Hi Sandy

    Im not a beanie :) but

    almost all our clients park their rent AND any other + ve income nd rtns against their personal non deductible debt.

    A tax rtn is PERSONAL funds by the way.

    Always was your money, you have just given the ATO an Interest free loan thats all :)

    ta
    rlf
     
  3. Terry_w

    Terry_w Member

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    No, this doesn't sound good to me. You should be trying to save interest on the non-deductible loan first. So all income, rent, wages, proceeds of crime, tax returns etc should go into the offset account on the non deductible loan.

    Not sure why you think it mandatory to put rental income into an offset secured against an investment loan. You are giving the ATO too much tax by doing this.


    Put it in offset account 1.
     
  4. Rixter

    Rixter $uper Investor (Retired)

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    What Terry said..


    I suggest submitting an Income Tax Withholding Variation to get your tax back in your pay packet each pay period and working for you sooner & harder instead of waiting until the end of financial year.

    As Rolf says, the ATO are not paying you interest for holding funds that rightfully yours for year!
     
  5. damacc

    damacc Member

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    Agree with putting against your own home rather than investment property and putting in an Income Tax Withholding Variation Form. The next form comes out from the ATO in May for the 2012-2013 tax year. This can be completed by downloading a paper version and sending it in or completing online.
     
  6. matto_

    matto_ Member

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    I have been doing the tax with holding variation firm the lady couple of years and it works really well.

    Question, do I need to do this through my accountant our can I do it myself?

    Thanx
     
  7. Rixter

    Rixter $uper Investor (Retired)

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    You can do it yourself...I do. Just need your incomes and expenses details to fill in. I print out a pdf copy then work out & fill in the relevant sections. Then I go online and transpose the info into the ATO's online form and submit.. gets process in less than half the time a hard copy application is sent off. a lot faster that way.