Rate Busters? Looks like the cheapest?

That is SO misleading. I also considered Ratebusters when taking out my PPOR loan for the very reason that they offered an offset facility.
I am glad I did not go with them and I wish they were made to clearly state that their offset is in fact a redraw facility. CBA's offset facility is similarly not an actual offset account.
 
That is SO misleading. I also considered Ratebusters when taking out my PPOR loan for the very reason that they offered an offset facility.
I am glad I did not go with them and I wish they were made to clearly state that their offset is in fact a redraw facility. CBA's offset facility is similarly not an actual offset account.

Hi Trebor

The CBA MISA isnt perfect, in that it is not a transaction account as well.

But for the purposes of this exercise and ATO compliance it does actually work well.

ta
rolf
 
That's an interesting observation - I work in a completely unrelated field, and we advertise in magazines, and that is certainly true, the articles etc focus more on the advertisers, which I can see clearly in my field. But it's certainly never something I never thought about in regards to these magazines - thanks for pointing that out.



Definitely - in any case, if not for that article, I would not have really looked beyond the top banks and what they offer, at least I'm more aware of what else is available, just by reading through. I wouldn't choose any product (not just talking about home loans) based entirely on someone else's recommendation, but it's always good to hear what others have to say about something, to assist in researching.

Now if I could just get my head around what their "offset redraw account" is, I'd be set :)

They call it a redraw offset account rather than an offset account, because an offset account is a transactional bank account, and APRA only allows ADI's - authorsied deposit taking institutions, to provide bank accounts for customers. Non ADI's are not allowed to establish bank accounts for customers, because bank accounts are deposit taking financial products, and non ADI's are not authorised to provide such products.
So because the funding for the Rate Busters product comes from Firstmac, who are a non bank, who are not allowed to provide an actual bank account, they have to do it slightly differently. Instead of establishing a bank account, they set up a split on the loan, and link bpay, eftpos, pay anyone, Visa debit/atm card etc, to it. So while its not by definition a bank account it does exactly the same thing. It is fully transactional, and every surplus dollar sitting in the loan split offsets the interest payable on the main loan. Its the same thing, but they arent allowed to call it the same thing. Thats why its called a redraw offset account, rather than an offset account.
 
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In other words, its not a standard bank account offset, but it does exactly the same thing, efectively.

Because of the complexity of this product youd want to get a PBR from the ATO to see if they see it as a discrete offset account for the purposes of separating personal or tax paid funds from borrowings, or if they see it as a redraw style/ LOC style arrangement.

If the ATO sees it as a redraw account, where you may get into trouble really quickly is where you

1. Use such a product for an IP and you pile your income and rent into the "offset" and then take money from it for your personal expenses. Very quickly your deductible debt will be recycled into non deductible

2. If you currently have a PPOR and wish to convert to an IP later, piling cash into the "offset" may reduce the amount deductible at the time the place becomes an IP.

There is no argument that the accounts provide credit for the amount in "advance", thats not the issue here, its the tx treatment of the advance repayments and the "nature" of payments into the offset.


ta

rolf
 
Because of the complexity of this product youd want to get a PBR from the ATO to see if they see it as a discrete offset account for the purposes of separating personal or tax paid funds from borrowings, or if they see it as a redraw style/ LOC style arrangement.

If the ATO sees it as a redraw account, where you may get into trouble really quickly is where you

1. Use such a product for an IP and you pile your income and rent into the "offset" and then take money from it for your personal expenses. Very quickly your deductible debt will be recycled into non deductible

2. If you currently have a PPOR and wish to convert to an IP later, piling cash into the "offset" may reduce the amount deductible at the time the place becomes an IP.

There is no argument that the accounts provide credit for the amount in "advance", thats not the issue here, its the tx treatment of the advance repayments and the "nature" of payments into the offset.


ta

rolf
sorry Rolf....with all due respect, thats pedantic and just not necessary. This product has been around with Firstmac and sold through many mortgage managers for 5 or 6 years.... Ratebusters, Assured, Mortgage Ezy, Mortgage House etc, have sold it in bucketloads. Its primarily sold to investors because it has 10 splits, I/O for 10 years etc....

I mean, seriously.... no wonder people shy away from non banks and their excellent products, when brokers question their products... if you use Mav and MISA through CBA, why wouldnt you use this? Its cheaper, with no annual fees and equal/ better features...
 
sorry Rolf....with all due respect, thats pedantic and just not necessary.
Yes, it is pedantic, because the ATO are pedantic!

Can you confirm, euro73, that the ATO has made a ruling that this product is deductible as you propose? If not, then why do you think that this would be treated as an offset rather than a LOC by the ATO?
 
I mean, seriously.... no wonder people shy away from non banks and their excellent products, when brokers question their products... if you use Mav and MISA through CBA, why wouldnt you use this? Its cheaper, with no annual fees and equal/ better features...

as an aside, traditionally I personally have not liked securitised product because it all carried lmi ( thus sucking up LMI exposure for no good purpose) and to some extent had external risks that did not become apparent till the GFC hit.

Ask RHG and Macq bank brokers.

Then there used to be the very nice exits too

Many brokers like the products because they used to and still do pay higher comms.

When a lender can convince me that the product is fit for purpose I dont mind using it where the client is happy with it.

With so much at stake for the product provider it would be SIMPLE to get a ruling from the ATO to prevent such questions.................

ta'
rolf
 
Im not sure whether Ive ever seen a lender go to the ATO for a ruling on its products...aside from the old CitiBank LOC days.....

As an aside... just FYI- Firstmac doesnt take out LMI anymore, below 80%.
 
Im not sure whether Ive ever seen a lender go to the ATO for a ruling on its products...aside from the old CitiBank LOC days....
Doesn't that bolster our suspicions? A ruling is easily obtained, and would be a promotion point for the product. Surely the only reason a lender wouldn't obtain a ruling on a questionable product is because they suspect that they won't like the answer.
 
Doesn't that bolster our suspicions? A ruling is easily obtained, and would be a promotion point for the product. Surely the only reason a lender wouldn't obtain a ruling on a questionable product is because they suspect that they won't like the answer.

If a bank got a ruling, then customers would likely apply that ruling even if they used the product in was for which it was never intended. The bank could be exposing themselves to formal complaints and liability for other peoples mis-management.
 
Doesn't that bolster our suspicions? A ruling is easily obtained, and would be a promotion point for the product. Surely the only reason a lender wouldn't obtain a ruling on a questionable product is because they suspect that they won't like the answer.

We'll have to agree to disagree Perp.... its a rather long bow you are drawing. Lenders simply arent responsible for providing taxation or financial advice to borrowers... APRA ensures products are compliant at a banking level, and individuals need to observe ATO rules to ensure their personal affairs/behaviours are compliant.
 
euro73, I've been distracted. :eek: Ratebusters' position is really irrelevant.

The important thing for anybody to know from this thread is that the Ratebusters "redraw offset" is not a separate account, and using it in the recommended manner (depositing all salary into loan account, redrawing expenses) will contaminate an investment loan.

The product is only suitable for a PPOR, and I'd argue not even then. (In case you decide to convert your PPOR into an IP.)

The take-home message is: Just get a product with a true offset!
 
explain to me how any other offset would be any different.... if used as a transactional account for salary crediting and bill payment...
 
explain to me how any other offset would be any different.... if used as a transactional account for salary crediting and bill payment...
A true offset - separate account - would allow you to claim a deduction on all interest. This product appears to fall foul of ATO rules and contaminate your investment loan, meaning that the deductibility of interest is compromised.

I totally get that there's no difference in interest paid etc and that whether it's a separate account or a sub-account is just semantics, but the ATO has made it clear that these "semantics" mean a great deal in terms of taxation treatment.

But you knew that... :confused:
 
ok... heres the ATO ruling relating to offset accounts, which should address the issue once and for all. Took 3 seconds to Google it. Type in ATO and Offset, and voila! Relates specifically to the definition of an offset account for income tax purposes. Hopefully this provides you guys with comfort that the Rate Busters ( ie Firstmac) product, or any other non banks offset product is entirely compliant, and you can start using them :) No excuse now lads...after all, its sold at a cheaper rate than any pro pack loan - it promotes competition, and your concerns about its legitimacy/suitability for your customers from a tax perspective, should now be laid to rest.

http://law.ato.gov.au/atolaw/view.htm?locid='TXR/TR936/NAT/ATO

Please note the following paragraphs, specifically;

8. If an account is made up of a series of sub-accounts, some of which are used for deposits and some for loans, then the sub-accounts will be treated, for the purposes of this Ruling, as separate accounts. Consequently, a loan offset account arrangement involving such accounts will fall for consideration under the principles applying to dual accounts (paragraphs 6 and 7)
- see the link for 6 and 7. The Rate Busters (ie Firstmac) product meets both points.

14. Is there a limit on the kind of loan account that can be linked with a deposit account? No. There is no limit on the nature of the loan account which may be made the subject of loan account offset arrangement provided that the loan and deposit accounts are with the same financial institution.
Once again- the Ratebusters/Firstmac product complies.

25. This Ruling applies to years commencing both before and after its date of issue. To the extent that this Ruling differs from any private ruling given by this Office to a financial institution offering a loan account offset arrangement, this Ruling will only apply to customers of that institution from 1 July 1993
- Complies

Example 1 - An acceptable loan account offset arrangement

26. The XYZ Building Society offers its customers a dual account offset arrangement called the Loan Extinguisher Account ( refer to paragraph 8 above, which clearly states that a sub account is treated the same as any other offset "account", so in this instance the Rate Busters- ie Firstmac product is compliant and treated exactly the same as an account provided by a credit union, building society , bank or any other ADI). Customers are invited to deposit funds into the Loan Extinguisher Account with no right to interest. In return XYZ gives a reduction in the interest charged on the loan account. The customer's only entitlement is to the reduction in the interest charged on the home loan.
-Complies

27. The XYZ Building Society uses a two-step calculation of the interest payable on the Loan Account.

28. Step 1 is to charge a reduced rate of interest on that part of the balance of the Loan Account which equals the amount credited as the balance of the Loan Extinguisher Account. The rate charged on this part is the difference between the current Loan Account lending rate and the rate of interest payable on such a balance in an ordinary deposit account. Step 2 is to charge the normal lending rate against the balance of the Loan Account.
 
I'm happy to concede. :)

But as this is such an old ruling, I would have thought that our resident brokers would be aware of it... Rolf? Peter? Were you unaware of this ruling, or do you have concerns that the product falls foul of the ATO despite this ruling? :confused:
 
Hi Perp

I was not aware of that ruling, and in general strongly advise clients seek their own specific advice, since even simple things, like capitalised interest and associated strcutures are ok one week, and not the next.

My clients' accountant suggests that many rulings cant be applied carte blanche to other situations, thiugh this one looks straight fwd.

This ruling doesnt address the initial issue that raised all the confusion on this thread in the first place, that being the "redraw refund" bit

Having just gone back, and read the "no refund" post, this may place the product into discrete account status, which is likley ok

Euro is likely right, IF the 2 accounts are kept separate in that way.

Surely there is someone here that has such a product with the offset that can confirm the reduced payment each month based the amount in the offset.

I will chase down my firstmac BDM next week and see what they have to say.

ta
rolf
 
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If you scroll back through the posts, there's a copy of the two separate loan account/sub account details which have been posted by an existing ratebusters customer, confirming the product uses sub accounts for the "redraw offset"

Can we all finally agree the ratebusters (firstmac) redraw offset product is every bit as suitable as a bank offset product- only significantly cheaper, and in most cases more flexible?
With 4 free sub accounts/splits and each being allowed its own offset, each being allowed P & I or I/O for 5 or 10 years, a rate of 6.86, portability and no LMI to 80% maybe its worth talking it UP rather than questioning it?
Looks every bit as suitable a product for investors seeking to grow a portfolio of 3 or 4 properties as anything else around ie- MAV, Breakfree, Portfolio, etc... but far cheaper.
 
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