"Keeping The Nexus between The Borrowing and The Expenditure" Means ?

• 

  Muzeeb on 13/03/2022 - 00:39

  -1

  if personally had experience

• 

  bemybubble on 13/03/2022 - 07:03

  +2

  Edit: morning eyes made me read your options backwards

  You want clear line of sight that the loan is destined for an investment property thus making the interest deductible. If your second option creates this. Then that’s fine.

  Having it amongst where other expenses and income come out only muddies the waters..

  Keeping the nexus basically means your keeping the connecting between the purpose of the funds.

  Interest deductible works on a ‘purpose’ test. What is the purpose? Mixing it with other funds, as mentioned, muddies the pot.

  Can the bank create a seperate loan for that 300k instead of redrawing it? Would make your life easier when working out the deductibility %

  Best of luck!

  • 

    ppp13 on 13/03/2022 - 09:44

    Can the bank create a seperate loan for that 300k instead of redrawing it?

    It is s separate split loan but no offset as they don't provide 2 offsets on a single product ( there is a offset against first split).
    Only option for me is to put all money back to loan account and redraw later to savings account.

    • 

      bemybubble on 13/03/2022 - 09:55

      Can the bank create a seperate loan for that 300k instead of redrawing it?

      Absolutely. They do It all the time for car finance. For example.

• 

  cashless on 13/03/2022 - 09:40

  +1

  Please be kind

  We’re in the wrong place for that.

• 

  dtc on 13/03/2022 - 09:56

  +1

  If you put the money into an offset against your PPOR, it’s not being used for a deductible purpose (you can’t claim the costs of buying a PPOR) so the cost of the money is not deductible

  If you put the money into a separate account then you can deduct the loan cost because you are earning interest and the interest is taxable, so the cost of earning the interest is deductible. You are making a loss however, as the saving account will earn less than the loan interest. You are probably better off putting it in the offset and not deducting, but you need to do the figures

  There is no issue whatsoever if you put the money into your offset and then use the money for an investment and claim interest only for the amount used for the investment. So $300k into offset, no deduction. Then you pay $100k for an investment, you can start deducting interest on that $100k only. Money isn’t ‘deductible or not forever’, it can change if your use changes. Just keep good records

  Or don’t take the cash out if the loan now, leave as an undrawn loan and take it out as you need.

  • 

    sss143 on 13/03/2022 - 15:39

    moving deductible debt between savings account and loan account creates any issue ? Is that keeping good records ?

    What do you mean by - "Or don’t take the cash out if the loan now, leave as an undrawn loan and take it out as you need." ?

    • 

      dtc on 13/03/2022 - 16:24

      +1

      Good records is just making sure you know which part of your loan has been used for investment purposes and which part is still in your PPOR offset. For example, if you move money from the offset to the loan account, then pay your stamp duty etc out of that, then its clear. But if you paid stamp duty straight out of the offset, you need to be able to identify it

      The more complex part is 'what interest is deductible'. If you have $300k in offset and take $100k out and use for investment, then you can deduct interest on that $100k but the not the remaining $200k. However, you are being charged interest on $300k, so you have to calculate assessable interest. It becomes harder when you pay off some of the loan - say you pay off $20k. Is that paid off the investment part of the loan (so its now $80k investment and $200k offset), or proportional (offset reduced by 2/3 x $20k and investment by 1/3 x $20k) or all off the offset (still $100k investment and now $180k offset). The first is better (maximise deductible interest, minimise non deductible) but the tax office doesnt always like it. Also, my example is simple but if you are paying off the loan by $469 per week, then figuring it out is very messy

      That is why having all the investment money in a completely separate account and not in your offset is easier. Its not right or wrong to put it in your offset, its just more complicated

      As to 'dont take the cash out', it means if you are given a $300k loan, you dont take the money out straight away. It sits there as an undrawn loan. As you need it, you take the money. So if you need $100k, you draw $100k from the loan but there is still $200k not drawn, so you arent charged interest on it, you dont have to put the cash somewhere in the interim and create the mixing issues etc. You know what the deductible interest is, because you have only drawn money for investment purposes so all of the interest is deductible. This is probably the cleanest and cheapest solution (cheapest because you only draw down the money when you actually need it, so arent paying interest until then).

• 

  upended on 13/03/2022 - 14:27

  +1

  Keep your IP transactions as clean and separate as possible. In my scenario, like you I too drew part of the funds for my IP purchase from the equity of my PPOR. Those funds went into a separate account. Let's call this account A1. Remaining part for the IP purchase came in the form of an investment property loan. Those funds also went into a separate account (A2). Accounts A1 plus A2 (both are investment loan accounts) add up to the cost of IP purchase. Once building the IP was completed and it was rented out, I opened yet another account (A3) where I receive all the rental income. I use this account purely for rental income and transactions. For example, I pay council fees out of A3. The monthly loan repayment installment also gets deducted from A3.

  • 

    sss143 on 13/03/2022 - 15:36

    Yes we need to keep IP transactions clean.
    The only change I see in your idea is " I would like to keep rental income and personal income in offset linked with PPOR as that is non-deductible debt". Does that create any issue mixing personal income and rental income into one account ? Anyway we will have rental receipts to show right ?

    • 

      dtc on 13/03/2022 - 16:26

      Having the rent go direct to your offset is fine. You just have to declare the income at the end. Its not really any different to someone getting dividends or bank interest paid into a 'mixed' account. It isnt complex to figure out.

    • 

      upended on 13/03/2022 - 17:57

      I doubt it'll create any issues. At the end of the day, when its tax time, you'll have a statement of income and expenses prepared by your property manager, and your bank statement will clearly identify the total interest paid on your investment loan. If you have any doubt in your mind, I suggest speaking to your tax accountant (assuming you have one) as they can provide the right advice based on your individual circumstances.