All Topics / Legal & Accounting / link between expenses and money source

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  • Profile photo of grant7grant7
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    @grant7
    Join Date: 2006
    Post Count: 59
    May 27, 2006 - 4:08 am

    Hi all,

    Just wondering, if I pay tax deductible expenses (eg. rates on IP) out of a normal savings account (not offset etc..).
    Can I later transfer the money from say a LOC into the savings account and then claim the interest payable on the LOC loan, or have I lost the link between the expense and where the mony comes from?
    I know a better way to do it is pay the expense using the LOC in the first place, but sometimes the first situation might occur?

    Thanks
    Grant

    Profile photo of TerrywTerryw
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    @terryw
    Join Date: 2001
    Post Count: 16,213
    May 27, 2006 - 7:41 am

    I would say no to that.

    If you take money from a LOC you are borrowing. Deductibility depends on what you have borrowed for. In this case you would have borrowed to pay money into a savings account.

    You have to be careful about moving money around. I remember reading a case where the person increased their loan, and put the money into a savings account. They then used that money for investment, but the money was not deductible. The money was borrowed to place into a savings account. Putting it in there removed the connection to the borrowing and the investment purpose

    Terryw
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    Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
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    Profile photo of grant7grant7
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    @grant7
    Join Date: 2006
    Post Count: 59
    May 27, 2006 - 8:05 am

    Thanks Terry,

    OK, what if the savings account is an offset account?
    So that when the expense is paid from that account the interest bill that month will increase?

    Profile photo of TerrywTerryw
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    @terryw
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    May 27, 2006 - 10:36 am

    Shouldn’t make any difference if it is an offset account or not.

    Terryw
    Discover Home Loans
    Parramatta
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    Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
    http://www.Structuring.com.au
    Email Me

    Lawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au

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