Need to apportion?

[dwv]

Hi everyone. Just a quick question...

2008:
PPOR loan - 300K (with redraw and offset facilities), 50K offset

2009:
Redrew 100K from PPOR to buy 1 IP
PPOR loan - 400K (with redraw and offset facilities), 50K offset
IP loan - 500K

2010:
"Influx" of cash - 300K
PPOR loan - 400K (with redraw and offset facilities), 350K offset
IP loan - 500K

With my current offset at 350K and PPOR loan of 400K, I'm essentially just paying interest on 50K.

However, I did redraw 100K earlier for IP1 making interest on the 100K tax deductible.

So my question is, do I still claim tax deductibility on 100K knowing that I now only pay interest on 50K due to the recent cash influx in my offset or do I apportion tax deductibility?

Thanks!

 

[Terryw]

Wow, what a mess.

Just ignore the money in the offset. It has nothing to do with the interest on the loan - just base your calculations on the interest in proportions to the business/personal percentages.

 

[dwv]

Sorry Terry, my initial post didn't displayed properly (especially 2010)

Hi everyone. Just a quick question...

2008:
PPOR loan - 300K (with redraw and offset facilities), 50K offset

2009:
Redrew 100K from PPOR to buy 1 IP
PPOR loan - 400K (with redraw and offset facilities), 50K offset
IP loan - 500K

2010:
"Influx" of cash - 300K
PPOR loan - 400K (with redraw and offset facilities), 350K offset
IP loan - 500K

With my current offset at 350K and PPOR loan of 400K, I'm essentially just paying interest on 50K.

However, I did redraw 100K earlier for IP1 making interest on the 100K tax deductible.

So my question is, do I still claim tax deductibility on 100K knowing that I now only pay interest on 50K due to the recent cash influx in my offset or do I apportion tax deductibility?

Thanks!

Do you mean I can still claim tax deductibilty on the whole 100K?

 

[Terryw]

I would think no.

Your loan is 400,000 at the moment. 100,000 has been used for investment purposes, that means 1/4 or 25%.

Assuming your loan is IO and no other redraws or repayments have been made I think you could probably claim 25% of any interest on the whole loan.

I would suggest you immediately split the loan into a $300,000 portion and a $100,000 portion. Then place all the cash in the offset on the $300,000 portion as this was a loan for a private expense. You could put the other $50,000 in an offset on the investment loan - if your bank allows 2 offsets.

If you keep with one big loan you will be worse off in the long run.

 

[dwv]

Thanks Terry. I think I understand now...

 

[Bigtone]

my god who set that up for you???

you can't even claim interest on the $50k, more like $12,500

u could still fix the issue as you only have the money in the offset and have not reduced the principal, go and see a decent broker and they can clean up the mess

 

[Terryw]

my god who set that up for you???

you can't even claim interest on the $50k, more like $12,500

u could still fix the issue as you only have the money in the offset and have not reduced the principal, go and see a decent broker and they can clean up the mess

B - how did you arrive at the $12,500?

 

[dwv]

my god who set that up for you???

you can't even claim interest on the $50k, more like $12,500

u could still fix the issue as you only have the money in the offset and have not reduced the principal, go and see a decent broker and they can clean up the mess

Why not on the 50K? I think it was ok until recently when the 300K cash came in "abruptly".

 

[Bigtone]

B - how did you arrive at the $12,500?

25% of the $50k so in effect you are claiming interest on $12,500 when you apportion out the percentages.

i would do exactly what u said and split the loan now $300k and $100k, i would then pay the $300k down to zero to clear the private debt and redraw it for the next deposit on an investment property making it tax deductible. the $100k split should then be tax deducible on the original IP

 

[dwv]

How about just withdrawing 50K from the offset to make it 400K and 300K so that I'll still pay interest on 100K?

It gets more complicated as I plan to turn my PPOR into an IP then the IP to a PPOR. But I'll think I'll just sell the old PPOR and just start all over again so as not to over-complicate things.

 

[Terryw]

25% of the $50k so in effect you are claiming interest on $12,500 when you apportion out the percentages.

I see.

The loan is $400,000, but only 25% of this is deductible.

However, interest will only be charged on $50,000 (because the other $350,000 is offset) and only 25% of this will be deductible, so it does work out at the moment to be the interest on $12,500, but this would change as the offset account is reduced or added to.

 

[Bigtone]

I see.

The loan is $400,000, but only 25% of this is deductible.

However, interest will only be charged on $50,000 (because the other $350,000 is offset) and only 25% of this will be deductible, so it does work out at the moment to be the interest on $12,500, but this would change as the offset account is reduced or added to.

indeed that it correct

 

[Bigtone]

How about just withdrawing 50K from the offset to make it 400K and 300K so that I'll still pay interest on 100K?

that won't work, as it wiol still only be 25% tax deductible.

It gets more complicated as I plan to turn my PPOR into an IP then the IP to a PPOR. But I'll think I'll just sell the old PPOR and just start all over again so as not to over-complicate things.

u dont need to sell just go and see a decent broker, it is an easy fix

 

[Terryw]

Actually, I wonder if it is possible to separate the loans now. Because it is one big loan - its like mixing water with 25% milk - its not easy to separate them once mixed.

Better check with your tax advisor I think.

 

[Rolf Latham]

evaporation will move mostly water

Leaving behind elements of milk

Personally, I like the scrambled eggs analogy for this sort of mess

ta
rolf

 

[dwv]

I thought a redraw is almost the same as a LOC... but apparently not with an offset...

 

[dwv]

I would think no.

Your loan is 400,000 at the moment. 100,000 has been used for investment purposes, that means 1/4 or 25%.

Assuming your loan is IO and no other redraws or repayments have been made I think you could probably claim 25% of any interest on the whole loan.

I kind of don't get the above...

1. If I have a 400K loan without offset and 100K redrawn for investment, I can tax-deduct the interest on the whole 100K.

2. But if I have 400K loan with 50K offset, for example, and 100K redrawn for investment, why can't I tax-deduct the interest on the whole 100K still? The offset is for the PPOR loan and I can manually compute the interest on 100K based on the interest rate of the loan, can't I?

 

[mrsdawnrazor]

My understanding is that you can only claim a deduction on the interest that you have actually paid. Therefore (if you could get an accountant to sort this out) you have paid interest on $50k. 25% of the total loan was used for investment purposes, therefore you can claim tax deductions on the interest on $12.5k. At 7% you would be claiming a deduction on $875, so say at 40% - $350 rebate - it would cost you more than this for an accountant to sort through this!
I would restructure your loan portfolio to clean it up, thereby maximising your deductions and minimising your accountant's bill.

 

[Terryw]

I kind of don't get the above...

1. If I have a 400K loan without offset and 100K redrawn for investment, I can tax-deduct the interest on the whole 100K.

2. But if I have 400K loan with 50K offset, for example, and 100K redrawn for investment, why can't I tax-deduct the interest on the whole 100K still? The offset is for the PPOR loan and I can manually compute the interest on 100K based on the interest rate of the loan, can't I?

You can't do that because it is one big loan. If it was split you could. And this would save you tax too.