Offset Account & Tax

From: Manny B


Folks,

had a quick question re: having an offset account linked to your investment loan, so rather than saving up for a purchase (ie. a new PPOR) in another account (or making extra repayments into your IP loan), having it in an offset account to save on interest in the mean time on your IP loan & when the time is right to purchase or build your PPOR you just take out the cash from the offset account...

When you withdraw your cash from your offset account, would the original loan amount still be tax deductible? (as I know it wouldn't be if you draw the extra repayments from the IP loan instead)

Cheers,

Manny.
 
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Sim

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Reply: 1
From: Sim' Hampel


An offset account does not affect the principal of the loan account in anyway - it merely lowers the amount of interest you pay.

Doing what you suggested should not be a problem, as there are no questions about what the loan funds are used for. As you mentioned, this is exactly the reason why offset accounts are preferable to LOCs or redraw facilities when personal expenditure is involved.

 
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Reply: 2
From: Rolf Latham


Hi Manny

Precisely one of the reasons why I much prefer an offset to a plain redraw or LOC.

Yes the money you have in the offset to be used for PPOR purchase will not affect the tax deductability of the original loan amount.

Conversly if you were using a redraw OR LOC then the funds intially saved have repaid principal, and then redrawing for a private purpose does not preserve the tax deductability of the redrawn amount.
Ta

Rolf
 
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Reply: 2.1
From: Jef .


If I have an offset account linked to my PPOR home loan, I then use the cash on the offset account as deposit for an IP, would the amount withdrawn for the deposit be tax deductible?
 
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Reply: 2.1.1
From: Rolf Latham


Hi Jef

Theres nothing to deduct because its cash that was held in a savings account, sooooo theres not interest to pay.

Ta

Rolf
 
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Reply: 2.1.1.1
From: Jef .


Hi Rolf,

If I pay the funds into the PPOR loan and then redraw it later to deposit for an IP, would the interest on the redrawn funds be tax deductible?

So to use an offset account efficiently I should leave extra funds in offset account against PPOR loan to reduce non-tax deductible interest. If I need to move or upgrade my PPOR, I can use the cash in the offset to buy the next PPOR, keep the old PPOR as an IP and can still claim tax on the interest.

If I want to purchase IP, pay the funds into the PPOR loan and then redraw out to use as deposit for IP.

Thanks
 
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Reply: 2.1.1.1.1
From: Rolf Latham


Hi Jef

Yes and Yes, though if you are going to redraw against PPOR equity created by sticking in extra money it is prudent to xtract it with a separate loan to the PPOR loan. It makes tax accounting much easier

Ta

Rolf
 
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Reply: 2.1.1.1.1.1
From: Manny B


Hi all,

thanx for your responses, it re-confirmed my belief & will be looking at getting an offset account...

Cheers,

Manny.
 
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