I would imagine it would be like this:
You have $10,000 in savings in the offset. You borrow $1000 and place in into the savings. total $11,000.
Of this $11,000 only $1,000 is borrowings = 9%
So when you take $1,000 out to pay the interest only 9% of this is borrowed funds. So only 9% of the interest on the $1,000 borrowed would be deductible.
This is just the first month, try working it out for the second and it gets more mixed.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Certainly not trying to diminish the efforts of other posters here at all but to me it seems as if your accountant is the one you are speaking too. The three posters have each raised concerns with respect to your proposed structure and it would seem to me that it is time for your accountant to start earning some bucks.
Here it is early August and you're not due to see your accountant until November.
My advice would be top bring this appointment forward and get full and total clarification from your accountant who should know your situation intimately. If you cannot bring this appointment forward or get the required advice in a timely manner then maybe it is time to seek someone else's services.
For what it is worth splitting off your redraw would seem to be the best solution.
Terryw wrote:I would imagine it would be like this:You have $10,000 in savings in the offset. You borrow $1000 and place in into the savings. total $11,000.
Of this $11,000 only $1,000 is borrowings = 9%
So when you take $1,000 out to pay the interest only 9% of this is borrowed funds. So only 9% of the interest on the $1,000 borrowed would be deductible.
This is just the first month, try working it out for the second and it gets more mixed.
Sorry, can you please explain further? Are you saying that interest is only deductable on the $1000 in my savings account out of the $11000 that is in there?
Since you have mixed the borrowed money with savings then when you pay the interest on the loan only a small portion of the borrowings could be traced to the payment of interest.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Go back to the urine analogy. You have 1 L of mixed liquid. If you took out 50% then half of this would be urine.. Now just change the percentages around.
11 L with 1L urine. You take out 1L = 9% urine.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Yes correct, so interest charged only on the 9% of the total savings will be tax deductible since only that 9% of that total savings can be traced as being redrawn for the interest payment.
I’ve spoken to my bank and they’ve agreed to let the loan redraw on itself to pay itself off. There will be no interaction with my offset account what so ever from this point forward.
Thats good,
but considered the tax ruling mentioned by Ashley?
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Terryw wrote:Thats good,but considered the tax ruling mentioned by Ashley?
I have, the only time it will get interesting is when I take all the money out of my interest offset and buy my PPR. Then I will be shown to be engineering tax benefits by letting the investment loan redraw on itself and hence the interest charged following the redraw will be greater.
This I will chat to my accountant about, as I am not planning to buy a PPR until next year.
Chris, can I suggest that you talk to your accountant now and get it sorted out before doing anything with your borrowing structure. The reason that you are in this mess is that you did not talk to you accountant in the first place before setting up your loan structure. Don't make the same mistake twice!!!! By the time you talk to your accountant in a few months or a few years time, you may have done something you shouldn't have and by then it will be too late to unwind.
Cheers,
Luke
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