Top up loan traceability for tax

Hi all

I have just received a top up on my IP loan which is currently sat ready to be used as required. I would like to know what the best way to track the usage of the funds for tax purposes. Basically my current accounts are set up is as follows:

Bank A:
Acc 1: Offset account with all savings deposited in mainly savings for investments but also personal emergency funds.
Acc 2: existing Mortgage against IP which now includes additional funds made available from top up for me to spend.
Note: offset is linked to ip as no non dedutable debt

Bank B:
Acc 1 : Every day account for personal spending wages also get deposited here
Acc 2: credit card used for personal use and paying odd IP bills

Now I have the funds in my top up and I want to use them initially for a reno on my IP so today I was going to drop into Bunnings and buy all the things I need I.e cooker, timber, paint etc etc as I will be doing part of the work myself but then had a think on how to purchase these goods while keeping the loan tax dedutable.

Basically I was going to go to Bunnings and buy all the things I need on my credit card (acc 2 with bank B) but then to pay my credit card bill (only the amount I spend At Bunnings) with the loan funds I would have to transfer the funds from my loan in acc 2 bank A to acc 1 bank A then transfer this to bank B acc 1 then to bank B acc 2 to pay my credit card bill as I cannot transfer funds directly. The alternative to this is to buy the things in Bunnings with my debit card with bank A acc 1 then transfer the funds from acc 2 loan to pay this off.

I'm just concerned with mixing the loan funds with other savings etc as I don't want to loose the tax deductibility of the loan. I would only transfer the exact funds I used I.e if my bill at Bunnings was say $1,870 I would transfer this exact amount from the loan to the accounts with a reference on the transfer stating its for Bunnings so there was traceability, I wouldn't transfer say $2,000.

I'm sure this is a common issue that occurs but just wanted to get I right as I want to buy things today but cannot speak to my accountant until tomorrow.
 
Its unclear where the top up funds are atm. Can u elaborate.

But if you have any personal expenses on the card you will have a mixed loan and caanot just pzy the investment portion separate from the personal.
 
My understanding is, you can not pay for IP expenses from a credit card and then reimburse the credit card from any loan account that is used specifically for investment purposes.

Its the purpose for the funds that determines deductibility or not. Because you are paying into the credit card, my understanding is it's not deductible. If you use funds from your designated IP related loan to pay for the expenses directly then yes maybe able to.

I would strongly suggest you clarify things with your tax accountant before paying for the items.
 
My understanding is, you can not pay for IP expenses from a credit card and then reimburse the credit card from any loan account that is used specifically for investment purposes.

Its the purpose for the funds that determines deductibility or not. Because you are paying into the credit card, my understanding is it's not deductible. If you use funds from your designated IP related loan to pay for the expenses directly then yes maybe able to.

I would strongly suggest you clarify things with your tax accountant before paying for the items.

I disagree. A credit card ks a loan account. Paying for an investment expense with a credit card is borrowing money. This loan can be refinanced like any other. Its the purpose of ghe loan that determines deductibility.

However mixing creates problems.
 
I disagree. A credit card ks a loan account. Paying for an investment expense with a credit card is borrowing money. This loan can be refinanced like any other. Its the purpose of ghe loan that determines deductibility.

However mixing creates problems.

Yep that's what I said. Didnt he state that's what he wants to do:confused:
 
My understanding is the credit card is mixed use.

Are you saying you can claim in this situation?

We ar getting off track slightly, but this still relates to the OP's question.

Yes, possibly some of the interest expense will be deductible.

Think of the credit card as a LOC.

imagine there is $1000 in bunnings expenses for the IP and $1000 for groceries. This is a mixed loan. $2000 outstanding and 50% investment/50% private.

If Mr Chancer were to borrow $1000 from a LOC on ANZ and pay into this credit card 50% would come off the bunnings expenses and 50% off the groceries. So the new debt would be $500/$500.

Because half of the $1000 borrowed to pay into the credit card rates to investment half of the interest would be deductible on this $1000. The LOC would now be mixed purpose.

Solution:
Use the credit card solely for investment expenses that month. If there is outstanding debt on it, just pay it down to nil, pay the bunnings bill and then immediately use the LOC to pay this debt off (ie refinance). This way you would still get points and still be able to borrow to pay expenses with the one credit card without mixing.
 
We ar getting off track slightly, but this still relates to the OP's question.

Yes, possibly some of the interest expense will be deductible.

Think of the credit card as a LOC.

imagine there is $1000 in bunnings expenses for the IP and $1000 for groceries. This is a mixed loan. $2000 outstanding and 50% investment/50% private.

If Mr Chancer were to borrow $1000 from a LOC on ANZ and pay into this credit card 50% would come off the bunnings expenses and 50% off the groceries. So the new debt would be $500/$500.

Because half of the $1000 borrowed to pay into the credit card rates to investment half of the interest would be deductible on this $1000. The LOC would now be mixed purpose.

Solution:
Use the credit card solely for investment expenses that month. If there is outstanding debt on it, just pay it down to nil, pay the bunnings bill and then immediately use the LOC to pay this debt off (ie refinance). This way you would still get points and still be able to borrow to pay expenses with the one credit card without mixing.

Terry - Good example. Way too many people think if you spend $1k on a CC and then repay the $1k the same day using loan that its a refinance. If the card has a $10K balance before the $1k is spent and its non-deductible then 9% will only be deductible on the refinance. You can't specifically identify which part is being refinanced.

This is no different to the issue of tainting home loans by blending deductible and non-deductible debt. Its like having a 10litre beer keg with 9kg of beer. You cant pour 1 litre of coke in and later draw out 1litre of coke. Both beer and coke are now forever ruined.
 
and non-deductible debt. Its like having a 10litre beer keg with 9kg of beer. You cant pour 1 litre of coke in and later draw out 1litre of coke. Both beer and coke are now forever ruined.

I like to give a similar example using urine instead of coke. When the client resits and argues against me, which they often do, I ask would you drink the beer now that the urine has been removed. That gets the message across.
 
I like to give a similar example using urine instead of coke. When the client resits and argues against me, which they often do, I ask would you drink the beer now that the urine has been removed.

Of coarse you would still drink it.. its not nick named p_iss for nothing! :p
 
I like to give a similar example using urine instead of coke. When the client resits and argues against me, which they often do, I ask would you drink the beer now that the urine has been removed. That gets the message across.

Many lawyers I know have a drinks cabinet. I will now never accept a drink.
 
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