Offset Accounts and IPs - Tax Anomaly?

I heard this in passing and wanted to throw it out there.

- Buy IP, take out $100k loan.
- Claim all interest on $100k loan
- Set up offset account against it
- Deposit $40k into offset account
- Actual interest charged is on $60k loaned
- Continue to claim $100k loan

For this to work, you will need to have paperwork showing that the interest charged is on $100k which offset accounts usually do. The effect of the offset is a credit for interest saved resulting in only a debit of actual interest charged. The story goes that the interest charged is on full $100k notwithstanding that you only pay interest on $60k. The interest "ïncome" received or offset using the $40k is not assessable as it is not technically received. Sounds too good to be true but apparently a few RMs are spruiking this "loophole". Wouldn't want to be the guinea pig to put a private ruling in through.
 
Hiya AS

Thin ice ..............

Every lender that I know of with the right sort of IO offset account has the actual NETT interest billed on the statement.

Im sure the commissioner would take a dim view of someone claiming a cost that they could not substantiate

ta
rolf
 
Sounds a bit mixed up to me.

You have a loan of $100K
You have $40K in an offset
You are charged interest on $60K which is claimable.

That is how offsets work.

You can't "claim all interest on the $100K" because you aren't paying interest on $100K. You are only paying interest on the amount of the loan LESS the amount in the offset.

You can only ever claim the interest amount you pay.
Marg

PS: What are RM's?
 
I heard this in passing and wanted to throw it out there.

- Buy IP, take out $100k loan.
- Claim all interest on $100k loan
- Set up offset account against it
- Deposit $40k into offset account
- Actual interest charged is on $60k loaned
- Continue to claim $100k loan

For this to work, you will need to have paperwork showing that the interest charged is on $100k which offset accounts usually do. The effect of the offset is a credit for interest saved resulting in only a debit of actual interest charged. The story goes that the interest charged is on full $100k notwithstanding that you only pay interest on $60k. The interest "ïncome" received or offset using the $40k is not assessable as it is not technically received. Sounds too good to be true but apparently a few RMs are spruiking this "loophole". Wouldn't want to be the guinea pig to put a private ruling in through.

It only looks like an obvious and ham-fisted attempt at tax fraud because it is.
 
It only looks like an obvious and ham-fisted attempt at tax fraud because it is.

Confirms my view.

RMs are Relationship Managers at the banks on a commission trying to sell as many lending products as possible. This issue was brought up amongst a few colleagues at work who believed the RM implicitly. First timers.... I'll be staying well clear.
 
Tax advice from RMs.that almost as bad as taking tax advice from brokers.

Always, always check any 3rd party advice with ur own tax people.

In some circumstances, even they are very divided.

ta
rolf
 
Confirms my view.

RMs are Relationship Managers at the banks on a commission trying to sell as many lending products as possible. This issue was brought up amongst a few colleagues at work who believed the RM implicitly. First timers.... I'll be staying well clear.

Good for you.:)

Regards JO
 
There is an article in the the Dec Aust Property Investor magazine on this.

Instead of putting your rainy day money into term deposits or high interest accounts, if you put it into an offset account that is linked to the IP, it will reduce your interest bill on the IP. Later you can withdraw it at your leisure from the offset account.
I have 4 IPs and 4 LOC
If I switch one of the loans that is drawn at $200K, to a loan with an offset account, can I put my savings into the Offset, say $50K, which will reduce the interest payable on the IP loan to $150K, then when I withdraw the $50K for a car and travel, the IP loan interest payable goes up to $200K again.
All interest charged on the loan is tax deductable, regardless if it is at $200K or $150K.
But don't I want to claim interest on the full amount of the loan at $200K the whole time?
What diff does it make. Can someone help out, with an example as to whether is worth it or not?
 
But don't I want to claim interest on the full amount of the loan at $200K the whole time?
What diff does it make. Can someone help out, with an example as to whether is worth it or not?

It basically depends on whether you think you can make better use of the money elsewhere. Say if you're paying 6% interest on the loan, then you are essentially 'earning' 6% tax free on the offset portion of $50,000. You are $3,000 better off over a year if interest rates are constant and you keep your money in the offset.

If you think you can earn more than that amount after tax on your $50,000 elsewhere (and are not likely to need the money at call), better to put it there, but if not then leave it in the offset.

I hope I have this right, but corrections welcome :)
 
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