rent in offset account

[JPS25]

Thankyou everyone

We have learnt so much just reading and soaking in all the info from all of you on this and another forum. This is is our first IP so great to get feedback and more from you all. Thanks for all your help on June Interest.

On another note both our IP and PPR have separate offset accounts connected to each of them. We have our rent (first lot just due to go in) set to go into the offset for the Investment Loan is it possible to transfer this to our PPR offset and let it sit till the end of the month when interest is then due in order for it to go to work for us. Up until now we have paid all interest due out of our own money while the property was being built, we did the Handover early June and tenants moved in early July.

Any help would be appreciated

Thanks JPS

 

[D.T.]

Probably best to have it all go into the offset attached the PPOR as presumably you want to kill off the non deductible debt first.

 

[JPS25]

Thanks dtraeger2k

Just wanted to make sure it was ok with the tax man to do this. I will make sure I do a transfer to our PPR as soon as the rent hits the IP account its instant as with the same bank so no need to change account numbers with the PM.

Would be lost without all you guys on here

Thanks JPS25

 

[wobbycarly]

I'd suggest you change the bank details with the PM. Save you mucking around every month, when you can get the to make a change once.

And if the offset against the IP is costing you anything, and you don't really "use" it, then close it.

The accepted wisdom is to have an offset account against your non-deductible debt and dump every incoming into it, use your credit card for as many expenses as possible, even IP expenses, (leaving the offset balance as high as possible for as long as possible), and then pay your interest, bills, CC, etc as close to the EOM as practical. But don't pay interest on your CC!!!!! That defeats the purpose.

 

[gooram]

I'd suggest you change the bank details with the PM. Save you mucking around every month, when you can get the to make a change once.

And if the offset against the IP is costing you anything, and you don't really "use" it, then close it.

The accepted wisdom is to have an offset account against your non-deductible debt and dump every incoming into it, use your credit card for as many expenses as possible, even IP expenses, (leaving the offset balance as high as possible for as long as possible), and then pay your interest, bills, CC, etc as close to the EOM as practical. But don't pay interest on your CC!!!!! That defeats the purpose.

Better yet, set up a line of credit to pay all your interest and other IP expenses, and leave your rent in your offset against your PPOR. Essentially you are converting non-deductible debt into deductible debt, as the interest payments on this LOC are deductible.

 

[wobbycarly]

That's a much more aggressive, but certainly worthwhile, alternative strategy, but assumes there is sufficient equity to fund the shortfall and the bank will allow the funding.

 

[jaycee]

Better yet, set up a line of credit to pay all your interest and other IP expenses, and leave your rent in your offset against your PPOR. Essentially you are converting non-deductible debt into deductible debt, as the interest payments on this LOC are deductible.

Worked for me !

$2k to go and PPOR has no more mortgage !

 

[flyinghigh]

Hi everyone, i'm very new to this forum and this whole property investment game. So please excuse my limited knowledge

Ok so let me please get it straight here. I can put the rent which I receive from the tenants straight into the offset account of the PPOR. And then use the money in the Line of Credit account to pay off the mortgage of the IP. Therefore, also getting tax deductions from the interest? And the ATO is happy with that scenario?

thanks

 

[tess85]

Best to seek advice from your accountant as you may have specific circumstances that we might not be aware of....

I can't comment on the LOC bit as we don't have one, but yes, you usually can put rent straight into the offset account of the PPOR.

 

[gooram]

There's speculation about whether or not you need a tax ruling from the ATO to do this.

Read the "Capitalising Interest" sticky thread in this forum section for more discussion.

I've used it before without a ruling but it would be advisable to get one to cover your a$$.

 

[flyinghigh]

Thanks for the advice!
Tess, if you dont mind me asking, what type of finance do you have set up? Are there better ways to save money/tax?
Gooram, i will have a read of that sticky after this. Can you please let me know what a ruling is? And how I would go about get it from the ATO?
thanks all

 

[tess85]

Thanks for the advice!
Tess, if you dont mind me asking, what type of finance do you have set up? Are there better ways to save money/tax?

There is a great post here (which I tend to agree with) about offsets vs LOCs - I have gone for the offset account route.
http://www.somersoft.com/forums/showpost.php?p=512029&postcount=3

I have 2 IP loans (IO) and 1 PPOR loan (IO), and 1 offset account against the PPOR. All rental income and mortgage repayments come out of that 1 offset account. Nice and simple for me to understand though I'm not necessarily sure if it's the optimal setup.

 

[ozmale42]

Hi everyone, i'm very new to this forum and this whole property investment game. So please excuse my limited knowledge

Ok so let me please get it straight here. I can put the rent which I receive from the tenants straight into the offset account of the PPOR. And then use the money in the Line of Credit account to pay off the mortgage of the IP. Therefore, also getting tax deductions from the interest? And the ATO is happy with that scenario?

thanks

By sticking the rental income into a PPOR linked offset account you are effectively reducing the interest cost on your PPOR debt which is a smart strategy. In determining the value of interest to offset the source of the funds sitting in the offset account should be irrelevant..whether that be from rent income, salary, dividends or whatever. Provided you are including the rent in your assessable income what you do with it is your business.

The question of capitalising interest though (i,e by using your line of credit to fund interest payments) , refer to the sticky

 

[martym]

Hi,

I am pretty sure in fact 100% sure you can't do the line of credit thing as it fails the purpose test. The purpose test is what were the funds originally borrowed for? The line of credit funds were not borrowed to acquaire an income producing asset (ie not used to purchase the property) so therefore you can not calim the interest on the LOC loan.

Common mistakle people make is thinking the security property detrmines which debt is deductible...not so its what the loan funds were used for.

Martym

McDonald & Co
Mortgage Brokers & Buyers Agents
www.mcdonaldnadco.com.au
1300 711 054

 

[JamesGG]

I am pretty sure in fact 100% sure you can't do the line of credit thing as it fails the purpose test. The purpose test is what were the funds originally borrowed for? The line of credit funds were not borrowed to acquaire an income producing asset (ie not used to purchase the property) so therefore you can not calim the interest on the LOC loan.

Common mistakle people make is thinking the security property detrmines which debt is deductible...not so its what the loan funds were used for.

Marty - what if the borrowed funds were used to pay for expenses that were incurred in the course of earning an income...?

 

[bene313]

I am pretty sure in fact 100% sure you can't do the line of credit thing as it fails the purpose test. The purpose test is what were the funds originally borrowed for? The line of credit funds were not borrowed to acquaire an income producing asset (ie not used to purchase the property) so therefore you can not calim the interest on the LOC loan.

Common mistakle people make is thinking the security property detrmines which debt is deductible...not so its what the loan funds were used for.

If the funds were borrowed to pay costs associated with the income producing asset, then interest on those borrowings are deductible. This is the senario being discussed.

 

[jaycee]

Are you SURE of that marty ?

 

[flyinghigh]

Thanks all, this is slowly starting to make sense. I will have to reread the posts a few times to fully comprehend what you guys are saying!!

Just quickly, Martym, if a line of credit was created to withdraw equity in my PPOR for the purchasing a IP, then cant the money in the line of credit go towards paying off the IP mortgage?

thanks everyone, really appreciate you trying to help me understand. Sorry to the OP for hijacking

 

[bene313]

Just quickly, Martym, if a line of credit was created to withdraw equity in my PPOR for the purchasing a IP, then cant the money in the line of credit go towards paying off the IP mortgage?

FH you are basically saying that the LOC is being used first to deposit the IP, then second to pay costs associated with that IP (interest, rates, etc). The answer is yes. In such a situation the LOC interest is 100% deductible.

 

[flyinghigh]

FH you are basically saying that the LOC is being used first to deposit the IP, then second to pay costs associated with that IP (interest, rates, etc). The answer is yes. In such a situation the LOC interest is 100% deductible.

Thanks Bene! Will I still need a ruling from the ATO in this case?