Offset loan

G'day all,

Question for the bean counters onboard:

I have a Mortgage on my PPOR. I then sell an IP and find that the proceeds from that sale after all debts paid are enough to fully offset my mortgage. The actual amounts are $280k Mortgage and $293k Offset account. The offset is in place for almost a year. So during that period I pay no interest on my mortgage.

Then say I want to use those Offset funds for further investment after 1 year. For Tax purposes, is it enough that I had fully offset the PPOR during that time to consider the funds now INVESTMENT grade and therefore claim the interest paid as a Deduction, or must I actually pay down the PPOR for that to be considered by the ATO.

If I pay down the PPOR I will have to reapply for the loan as it is doesn't have Redraw. It would be great If I could just reuse the money.

Happy Aussie Day everyone

Pedro
 
G'day all,

Question for the bean counters onboard:

I have a Mortgage on my PPOR. I then sell an IP and find that the proceeds from that sale after all debts paid are enough to fully offset my mortgage. The actual amounts are $280k Mortgage and $293k Offset account. The offset is in place for almost a year. So during that period I pay no interest on my mortgage.

Then say I want to use those Offset funds for further investment after 1 year. For Tax purposes, is it enough that I had fully offset the PPOR during that time to consider the funds now INVESTMENT grade and therefore claim the interest paid as a Deduction, or must I actually pay down the PPOR for that to be considered by the ATO.

If I pay down the PPOR I will have to reapply for the loan as it is doesn't have Redraw. It would be great If I could just reuse the money.

Happy Aussie Day everyone

Pedro

My understanding is you would need to pay down actual loan and then redraw for the purpose of the investment. What loan does not have redraw, I don't know of any loans without redraw. What loan and lender is it?
 
I've never encountered a loan that has an offset account but no redraw.

Technically putting money in the offset account then taking it out for investment is not a process that actually involves borrowing money, so you're not borrowing the funds for any investment purpose. You're taking money from a savings account instead. Hence no tax deduction.

I'd look closer at the redraw component.

The other thing you could do is simply pay off and close the existing PPOR loan, then apply for an equity loan to access the money again. This would work in most cases.
 
Agree with the others - moving money in/out from an offset is transacting money in/out of a bank account - you don't appear to be "borrowing"

I'm sure the resident accountants will advise though.

Cheers

Jamie
 
100% positive there is no deduction as proposed.

However, if you pay down the PPOR loan using the offset so there is no loan. Then apply for a new loan for the new IP. The new loan is deductible - Provided the borrowed $ is used to buy the IP. The security (PPOR) used for the IP loan is irrelevant. Its how the borrowed $ are used that determines if its deductible.
 
Thanks everyone,

After discussion with the lender it turns out I can redraw. :eek:

That's what I'll do I think. It'll be a lot quicker, as well as save me an application fee.

Best wishes

Pedro
 
Thanks everyone,

After discussion with the lender it turns out I can redraw. :eek:

That's what I'll do I think. It'll be a lot quicker, as well as save me an application fee.

Best wishes

Pedro
You will need to talk to your tax accountant for the tax implications, but from a loan administration perspective, you will need to liaise with your mortage broker or lender for advice on the logistics of this. For example, you can park the funds in the offset account then closer to the time you are ready to invest, move all of the funds to fully pay down the loan and redraw at that point to create now borrowings for investment purchases. The lender may not like it if you fully pay down the loan now and leave it like that for 12 months. Your mortgage broker or lender will be able to advise on that aspect.

P.S. well done! It must be great to have effectively paid off your PPoR. Not many people achieve this.
 
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