offset account, no idea!

[GlennG]

Hi helpful people
We have an investment property, owing 390K but have an offset account with some money in it reducing the amount of interest paid. I suppose at tax time you just work out how much interest was paid in that tax year to claim a deduction.

But what happens if you borrow again to invest for example in the sharemarket. We would borrow at the same interest rate (putting up our house as collateral) We wouldn't want to buy shares all in one go so our bank manager suggested that we borrow the money and put it in the offset account. That way the interest that we have to pay on the new loan would be cancelled out by the savings on the interest that we would have had to pay if we hadn't increased the amount in the offset account.

Then we could occasionally invest money in the share market in parcels of 20K or so.

Is this the correct way of doing things?
At tax time how do we go about working out what we can claim as deductions with respect to interest that we're paying.

I guess that everytime we buy a parcel of shares that we can start claiming for the interest costs on that parcel, from that point in time.

Probably by now I've proven to you that I know little about these sorts of things, so any help on this would be welcome!
Cheers!

 

[Rolf Latham]

We wouldn't want to buy shares all in one go so our bank manager suggested that we borrow the money and put it in the offset account.

Hiya

Thats why bank managers manage branches and dont do people's taxes : )

In general I think if you take borrowed funds and mix it with personal cash you will run into deductability issues because you have lost the nexus of the funds

Let us help the branchie a little

What name bank please so we can recommend a suitable product for them to set up for you.

In all of this, I am assuming the $ in the offset currently is NOT borrowed miney
ta
rolf

 

[GlennG]

Hiya

Thats why bank managers manage branches and dont do people's taxes : )

In general I think if you take borrowed funds and mix it with personal cash you will run into deductability issues because you have lost the nexus of the funds

Let us help the branchie a little

What name bank please so we can recommend a suitable product for them to set up for you.

In all of this, I am assuming the $ in the offset currently is NOT borrowed miney
ta
rolf

Hi Rolf
Yes, the money in the offset account hasn't been borrowed.

I'm sorry, but I didn't express myself too well in the original post. I should have said something like 'it came up in discussions' rather than 'he told me to..'
It was clear all along that it wasn't his area of expertise. So if we ended up doing the wrong thing, I'd only be blaming myself.

He did say that we could borrow parts of the agreed loan when we wanted to invest them (so that we wouldn't be paying interest on the whole sum right from the start). So I guess that's what we should do.

So what we should do is

Loan for IP, with offset account reducing the interest paid.
Claim deduction on actual interest paid in tax year.

Have a separate investment loan. Never use money from it to pay for anything but shares.

Maybe then we could pay off a year's interest in advance if we ever wanted to - I didn't know how that could work if you had an offset account, as how would you work out what interest you would have to pay for the next year?

Or can you only pay a year in advance if it's an interest only loan? Or a fixed interest loan?

I think that there's too many things that I don't know - does anybody know of a really good book that goes into all of this sort of thing??

Many thanks