Using a LOC for ip expenses and keeping the rental income in an offset

[Ploengy]

Hi guys,

So im trying to set up my ip a bit better.

Currently my situation is:
-no ppor
-ip with offset against it
-loc currently not in use (was used for car loan)
-all ip expenses coming out of offset
-all ip income going into offset

What i'm thinking of doing:
-all ip expenses coming out of loc
-all rental income going into offset account so that if i need the $ for personal reasons they are available
-transferring chosen amounts of rental income into loc (keeping a % available for my personal use in offset)

As it is an ip the offsets against - the interest saved on loan vs interest charged on loc shouldn't be a great amount.

My main concern is keeping the ATO happy. Being that the offset is also reducing interest paid on my ip loan i don't think ATO would have an issue with the interest on the loc? As its not like its against a ppor, reducing my personal debt. Although there is a .15% difference loc and loan. Just want to get some others thoughts.

What would be the advantages/disadvantages of changing my setup?
Or should i just leave it?

Also, thinking of splitting loc, keeping small portion for personal use...
-advantages of having this or just keep loc as a whole and hopefully have any needed personal funds in my offset?

Cheers, any advice is appreciated

 

[Terry_w]

do you include interest in your definition of all expenses.?

 

[Ploengy]

Yes.............

 

[Terry_w]

In that case you should read the recent ATO ruling on capitalising interest and 'paying off the home loan sooner'.

 

[Ploengy]

Hi Terry,

I have had a bit of a read of the ruling - since my offset is against an ip loan (i don't have a ppor) would this ruling still be applicable? And would still put a % of rent into loc to keep it healthy.

Just trying to work out if its worth changing how i have it now and keeping a bit more personal $ available. Or should i just leave it?

Thanks

 

[Peter_Tersteeg]

You can put all your expenses through a LOC except the interest.

Most people make it easy on themselves and just run everything through an offset account.

 

[Terry_w]

Hi Terry,

I have had a bit of a read of the ruling - since my offset is against an ip loan (i don't have a ppor) would this ruling still be applicable? And would still put a % of rent into loc to keep it healthy.

Just trying to work out if its worth changing how i have it now and keeping a bit more personal $ available. Or should i just leave it?

Thanks

If you are paying interest from a loc or borrowing to pay interest then it would be relevant.

 

[Ploengy]

I originally got the idea as i heard that accountants like everything going through one account so its easy come tax time and people use loc's for this?

I just want an easy way to keep track of it too - if all funds go in and out of the loc but by the sounds of it i shouldn't be doing that. I currently use my offset but this makes it harder come tax time to sort personal and ip....and also the ip is -ive geared so i am using more of my personal funds

Is there a way to maintain as much as i can in cash by using borrowed money instead so if i choose to purchase a ppor i have some savings instead of using it for my ip??

 

[Terry_w]

Not sure why you find it hard to keep track of with an offset. It wouldnt matter which method you used you would still need to keep records of expenses and amounts paid. Have you made up a spreadsheet tp record things?

Think it is still a good idea to borrow to pay expenses with a loc. Just get some advice xfirst

 

[Ploengy]

Yes currently have a spreadsheet but weeding through the statement and picking out ip related expenses isn't fun and when i heard about using the loc i thought it would be alot easier just to know every transaction on statement is ip related.

Plus would just rather have more $ available to me if needed so thought maybe i need to change my setup.

I guess even if i had all expenses but interest coming from loc and then just put a % of rent every so often to keep loc healthy i would be in a better position?