Offset Question

[Demoivre]

Gday all,

Hope everyone is having a great day!

Quick question. How many offsets do you generally need?. Suppose an individual has only one with one A loan being offset and the other B loan without but using the same account. How would you go about reducing the interest payment B loan?

Both loans IP loans.

Is it normal to have an offset account for each IP loan you have?

Cheers

 

[Corey Batt]

I'd stick to one for personal use, one for investment and leave it at that.

Unless of course you're flush with cash and keep hitting 100% of your offset to debt balance.

 

[Rolf Latham]

few complications may make for different reuslts

ie whats in the offsets - tax paid cash or borrowed $

typically one offset, linked to the highest rate loan, or the loan with Non debt debt first and foremost

ta
rolf

 

[Demoivre]

I'd stick to one for personal use, one for investment and leave it at that.

Unless of course you're flush with cash and keep hitting 100% of your offset to debt balance.

Lets say the individual keeps hitting 100% Then what?

 

[Demoivre]

few complications may make for different reuslts

ie whats in the offsets - tax paid cash or borrowed $

ta
rolf

4% in borrowed $, the rest tax paid cash/savings

No PPoR loan

 

[Corey Batt]

Lets say the individual keeps hitting 100% Then what?

Either:

A)Open up another offset account against another debt which isn't current being offset - if you've run out of non-deductible debt to offset then against investment

B)Buy a Porsche

 

[Terry_w]

If you keep filling offset accounts up to the loan amount you should then open further offsets on other loans.

If these are full you would be paying no interest at all and then should look at other ways to hold or invest cash.

 

[LoneWolf]

When our PPOR offset was at 100%, we simply put anything additional into another investment account rather than off setting our IP loans

 

[Redom]

B)Buy a Porsche

Haha best advice ever.

 

[Demoivre]

When our PPOR offset was at 100%, we simply put anything additional into another investment account rather than off setting our IP loans

Is there a reason why you wouldn't want to offset another loan?

 

[LoneWolf]

Is there a reason why you wouldn't want to offset another loan?

the reason would be that to maximum my tax benefits / gearing

 

[speary]

That's seems a little silly IMO. You are still better off having the funds offsetting a loan, even if its a deductible one.

 

[albanga]

That's seems a little silly IMO. You are still better off having the funds offsetting a loan, even if its a deductible one.

I guess my take on this is that you may be able to get a higher return investing the money elsewhere.
For example if your interest rate is 5% but you can get say 6% in another investment then you are 1% better off and you can still claim the full tax deductions of the IP loan.

I am a total novice though so go easy on me if I am off the mark! haha

 

[Terry_w]

Imagine you had an investment property in spouse A's name. No non deductible debt.
Spouse B doesn't work, so no income

If A and B had say $100,00 cash between then they have a few choices, but 2 main ones:
1. Park $100,000 in offset on IP
2. Open a savings account in B's name only.

Putting $100,000 in the offset would mean A's deductions decrease by $100,000 x 5% = $5000 per year. This means $5000 more profit which increases A's income by $5000. If on the 45% tax bracket that means $2250 more in tax. Net result is $5000 - $2250 = $2750 in pocket

If the savings account is opened at 4%. B would receive an income of $100,000 x 4% = $4000. No tax payable at all. Net result is $4000 in pocket.

 

[speary]

Agreed Terry, where one spouse is not working it obviously changes the situation for most things. I should have said you are almost always better off..

 

[LoneWolf]

I am no expert in this field, but correct me if I am wrong.

For IP interests, it is tax deductible
Therefore, why would you want to offset a deductible?

As the money can be allocate more efficiently in other mediums

 

[Terry_w]

I am no expert in this field, but correct me if I am wrong.

For IP interests, it is tax deductible
Therefore, why would you want to offset a deductible?

As the money can be allocate more efficiently in other mediums

Depends on the situation. if you invest elsewhere you will be generating income which will be taxable. In a inevstment loan you may be paying 5% interest so that is a 5% return before tax.

 

[LoneWolf]

Depends on the situation. if you invest elsewhere you will be generating income which will be taxable. In a inevstment loan you may be paying 5% interest so that is a 5% return before tax.

What if that medium involves with trust distributions

 

[Terry_w]

What if that medium involves with trust distributions

I don't understand what you are getting at