Tax deductions - Interest in Advance

Discussion in 'Accounting and Tax' started by Sandydubes, 2nd Apr, 2012.

  1. Sandydubes

    Sandydubes Member

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    Hi,

    I am in the process of setting up a Fix rate Interest only home loan that allows advance payment of annual interest.

    While I am aware of the benefits, I am not sure about how (and what accounts) to receive the rental income so that it does not become idle money for the year (not generating any income or offsetting any interest).

    Note that the loan product does not have a redraw facility or offset. Only upto $10k of extra repayment is allowed in a year. My rental income is expected to be @26k per year.

    Thanks and Regards,
    Sandy
     
  2. Terry_w

    Terry_w Member

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    Best to park the rent into your offset account attached to your non deductible home loan.
     
  3. Aaron_C

    Aaron_C Finance Broker

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    Or put the rental in a savings account if the offset doesn't exist.
     
  4. Sandydubes

    Sandydubes Member

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    Understand. I have a non-deductible home loan with a offset. So the rental income goes in thos offset. Can I later take the money out and pay for the IP expeneses like fees, strata, insurance etc. from the offset account - technically yes, but does that impact tax deductions - heard of some advisers suggesting that the nexus is lost and the personal and borowed funds are mixed. Sounds very confisuing to me.

    I have a PPOR with 2 fixed rate I/O splits.

    FIX 1 Loan balance 185K. Offset balance 5K - nomintaed for recieving all my salaries and paying out all personal expenses.

    FIX 2 Loan Balance 220K, Offset balance 220K - nominated to pay for the IP deposit (10% of the buy price) that I intend to buy shortly. This will reduce the offset balance to say 150K and I will start incurring interest on 70K - which will be all tax deductible as the purpose of the loan is to acquire an income producing asset (that is making loss/negatively geared property).

    I am now setting up another loan with a different lender to finance 90% of this IP. This the one which will have interest in advance option, Fix rate, I/O.

    With the above context, am I better off to recieve the rental in Fix 1 Offset account and use that to pay for all the rental income. Will that create any issues in terms of tax deductions?

    Thanks,
    Sandy
     
  5. Terry_w

    Terry_w Member

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    An offset account is not borrowings so there is no nexus to break.
     
  6. Terry_w

    Terry_w Member

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    Oh. unless you have borrowed money and parked it into an offset account temporarily (very dangerous in my opinion). If this is the case no other money should go into this account.

    Also, if possible you should borrow to pay investment expenses so that you can pay your home loan down faster.
     
  7. Rolf Latham

    Rolf Latham Member

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    Is ur current lender CUA The Rock or Adelaide bank ?

    Fixed loans and 100 % offset are pretty rare, and I believe The rock dont do them anymore.

    t
    arolf
     
  8. Sandydubes

    Sandydubes Member

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    It is with Adelaide Bank.
     
  9. Rolf Latham

    Rolf Latham Member

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    had to ask, because many offset on fixed arent 100 %, many are 40 % or less :eek:

    ABL is a good product for that

    t
    arolf