Using an offset account - Accountant says "No"

[Roosterman]

Hi All,

My accountant (a self-confessed pedant) told me yesterday that I could get into trouble with the ATO if I get audited, because of the way that I use my offset account.

I have 3 loans with ANZ, with the offset account attached to one of the loans. The offset account is used as my everyday account - wages and rent are paid in, the mortgages are paid from that account, all my bills (IP and personal), everyday transactions etc.

I'm not actually making much use of the offset, as I usually drain it each month, the excess goes to an online savings account.

The problem, as my accountant sees it, is that each and every time I perform a transaction on that account, I am affecting the amount of interest that I can claim, and that technically the ATO could argue that I need to reconcile the account after each transaction, as it is used for both investment and non-investment purposes.

I remember reading on here ages ago (I think it was the Y-Man) that these transactions are OK as they do not actually change the balance of the loan.

Has anybody come across this? I really don't feel like changing all my direct debits/salary/rent deposits etc to another bank account, but will do so if I must.....

 

[Rolf Latham]

Hi

is there any BORROWED money in the offset ?

ta
rolf

 

[Roosterman]

Hi Rolf,

No borrowed funds in the offset. It is jsut used as a normal transaction account.

 

[silverx]

Hi Rolf,

No borrowed funds in the offset. It is jsut used as a normal transaction account.

if it's a real offset account i dont think that would be the case, unless if the offset account is actually a redraw account

 

[wobbycarly]

Hi Rolf,

No borrowed funds in the offset. It is jsut used as a normal transaction account.

Get a new accountant.

The amount of interest you can claim does in fact change, because the amount you are CHARGED will change as the offset balance changes. But if you only claim what you're charged (some months more, some months less) there's no problem. No different from having a variable IR.

 

[wobbycarly]

if it's a real offset account i dont think that would be the case, unless if the offset account is actually a redraw account

True... but based on the original description "ANZ, with the offset account attached to one of the loans" I'd assume it's probably a real offset.

 

[Rolf Latham]

sounds like ANZs SVR with Anz ONE acct attached

Im no bean counter, but I reckon youd be good to go.

There is some confusion with Domjan V Ato, but that relates to contamination of BORROWED funds not milk money

Rather than dismiss the Beanie outright, id ask them of their logic and see what pops out

ta

rolf

 

[Roosterman]

The accountant's logic is: (using dummy figures for illustrative purposes)

Loan is $100k. Interest at 7% is $583 per month.

Wage goes into offset account ($10k)

Balance of loan is still $100k, but now only charged interest on $90k = $525

I spend my wage, balance of loan is still $100k, now being charged interest on $100k - $583.

He is saying that the additional $58 in interest in not deductible, as that $10k was not used for investment purposes.

Anyhoo, appreciate the replies, thanks guys...

 

[Mry]

Give this to your accountant.

http://www.ato.gov.au/corporate/content.aspx?doc=/rba/content/85315.htm

From the ruling

This will remain the case even if funds are withdrawn from the deposit account and used for non-income producing purposes. Depositing funds into the deposit account will decrease the interest payable on the loan account but will not decrease the balance of the loan account. Withdrawing funds from the deposit account will increase the interest payable on the loan account but will not increase the balance of the loan account.

 

[Rolf Latham]

Hi Rooster

Maybe he is getting mixed up and saying the interest thats deductible is based on 90 k, which is true.

But thats stil the FULL amount off the statement

t
arolf

 

[Roosterman]

Thanks Mry and Rolf.

That ATO ruling seems pretty cut and dried.

Loan balance doesn't change....

 

[Theresa777]

The accountant's logic is: (using dummy figures for illustrative purposes)

Loan is $100k. Interest at 7% is $583 per month.

Wage goes into offset account ($10k)

Balance of loan is still $100k, but now only charged interest on $90k = $525

I spend my wage, balance of loan is still $100k, now being charged interest on $100k - $583.

He is saying that the additional $58 in interest in not deductible, as that $10k was not used for investment purposes.

Anyhoo, appreciate the replies, thanks guys...

So, the accountant said that just because you take the money back out of the offset, that the resulting amount of increase to the interest on the loan is now not deductible????????

I would check on some of his other work too if it were me ........

 

[mech81]

Think you need a second opinion here. It would only be the case if it was a redraw from the SAME account (aka Loan account). The offset account is deemed a separate account so would have not bearing on tax deductibility. Thats what I understand and am happy for othrs to correct me.

 

[Deltaberry]

Depends how you got your offset account in the first place

 

[SellYourOwnHome]

Your accountant is spot on.

From what I gather, what he is saying is:

Month 1: loan $100k you can claim $583 in interest

Month 2: if you deposit $10k in your offset acc at the beginning of the month and leave it in there for the full 30 days, you can only claim $525 for that month ONLY

Month 3: if you withdraw $10k at the beginning of the month and not deposit any more money for the rest of that month, you can once again claim $583

That's what an offset account is designed for, to reduce interest payable (and claimable) on your loan, even if only temporarily.

Of course, the calculations will not be as simple as the example above, but yes, you will need to reconcile your account after EACH transaction. But your accountant can do that at year's end with a simple spreadsheet.

 

[wobbycarly]

Your accountant is spot on.

From what I gather, what he is saying is:

Month 1: loan $100k you can claim $583 in interest

Month 2: if you deposit $10k in your offset acc at the beginning of the month and leave it in there for the full 30 days, you can only claim $525 for that month ONLY

Month 3: if you withdraw $10k at the beginning of the month and not deposit any more money for the rest of that month, you can once again claim $583

That's what an offset account is designed for, to reduce interest payable (and claimable) on your loan, even if only temporarily.

Of course, the calculations will not be as simple as the example above, but yes, you will need to reconcile your account after EACH transaction. But your accountant can do that at year's end with a simple spreadsheet.

Why is this necessary? My bank just tells me how much interest I've paid, and that's what I claim. There's no deductible/non-deductible/contaminated argument because the load amount has not changed.

PS. This is assuming a "garden variety" offset account, and NOT redraw, as pointed out by others.

 

[MikeF]

hi

I don't see what the fuss is about........just add up the actual amounts of monthly interest paid from the off-set during the financial year and that is what you claim.

ANZ off-set is stock standard seperate transaction account and so the loan amount has not changed just the amount of interest being changed.

 

[MichaelW]

Nothing to see here, move along, move along...

Yes, whatever interest you pay against that deductible loan you can claim. If you pay less interest one month because of cash in your offset then you claim less interest that month. If you pay more the next because of cash withdrawn from your offset then you claim more.

Like mentioned above, just look back over your statements and claim interest paid. The money in and out of the offset is completely irrelevant.

Cheers,
Michael

 

[Mry]

There is some confusion in the thread. The original post said

The problem, as my accountant sees it, is that each and every time I perform a transaction on that account, I am affecting the amount of interest that I can claim, and that technically the ATO could argue that I need to reconcile the account after each transaction, as it is used for both investment and non-investment purposes.

The account referred to being the offset account. That seems to indicate that the accountant was stating that the offset account affected the deductibility of the original loan.

Then later

The accountant's logic is: (using dummy figures for illustrative purposes)

Loan is $100k. Interest at 7% is $583 per month.

Wage goes into offset account ($10k)

Balance of loan is still $100k, but now only charged interest on $90k = $525

I spend my wage, balance of loan is still $100k, now being charged interest on $100k - $583.

He is saying that the additional $58 in interest in not deductible, as that $10k was not used for investment purposes.

Anyhoo, appreciate the replies, thanks guys...

Which is correct as the offset "offsets" the interest charge. It seemed there were two stories there, but in the end the question was answered.

 

[Terryw]

Interesting to see an article in the SMH today about offset v redraw. Not one mention of taxation issues!!!!

http://www.smh.com.au/money/borrowing/in-the-interest-of-saving-20111004-1l5q3.html