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Interest deductibility question

Discussion in 'Finance & Banking' started by gad, 13th Aug, 2008.

  1. gad

    gad Well-Known Member

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    Hi Guys

    I am at present having my property portfolio revalued so I can purchase more Managed Fund units.
    I have recently been pretty high in the Margin call buffer zone & if I put these funds straight into my MF’s, the LVR should drop back down to app. 57% (at this time).
    I also feel it’s a good time to get those units at these prices.

    I have just been wondering that, if, instead of doing the above, I kept the funds in an untouched / empty Offset account & only bought funds when & if I receive a margin call, would that affect the tax deductibility of the interest?

    (I would not be claiming against the interest whilst it's in the offset account, as it would be reducing the interest elsewhere. Apportioning will be a little headache but do-able).

    The original purpose of the loan is to invest in MF's but would I be judged by the ATO to be doing something else?

    Any opinions? Thanks.
     
  2. Nigel Ward

    Nigel Ward Team InvestEd

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    Your actual purpose will match your intent here though won't it? Just a timing difference.

    In any event there won't be any net interest paid on those funds whilst its in the offset right? So no deduction claimed I would have thought?

    Please seek your own tax advice... ;)

    Cheers
    N.
     
  3. gad

    gad Well-Known Member

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    Hi Nigel

    That's right, no interest would be claimed while the funds were in the offset account.

    That "timing difference" was the concern.

    Thanks Nigel
     
  4. jrc77

    jrc77 Well-Known Member

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    Couldn't you just leave the redraw available on your home loan until you are ready to invest ...???

    Not sure what you are gaining by putting it in your offset account ... apart from taxation complications.

    Regards,

    JR
     
  5. gad

    gad Well-Known Member

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    Hi jrc77

    It's not a redraw, it's a top up on 4 mortgages.

    There is nothing to redraw on any of them, they are/were 85% interest only loans (without MI).

    The top ups will reflect 85% of the new valuations less what is already owed, which will be deposited into my nominated account.

    Hope that makes sense.
     
  6. Billv

    Billv Getting there

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    Gad

    A separate LOC would have been a much better option.

    The problem with an offset account is that it's a savings account earning no interest so while you have the money in there, it offsets 1 of the loans.

    In the event where you take it away you pay no interest, the interest is charged against the loan so you can't easily separate it and claim it against the shares.

    Is this a problem?
    Probably not because it will be claimed through the IP but this is not what the ATO would want to see.
    If you still want to go down this path check with your accountant.

    Also, if the offset account is linked to your PPOR and not to an IP then things can get very complicated.

    Cheers
     
  7. gad

    gad Well-Known Member

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    Hi BV

    This is what I told my mortgage broker that I wanted in the first place. He was pretty adamant that this way was the better way to do it, which I won't go into in great detail here (mainly to do with the package & setup that's already in place).

    That's correct. I would only pay extra interest when I use some or all of those funds. That's not a problem, that's fine.

    I am already doing this, it would just take an adjustment to the % apportions that I already have set up in my spread sheet. This would only take me a few minutes on each loan. Not a problem. It would all be apportioned properly & the relevant amount would be claimed correctly against the correct investment.

    The offset account would be attached to an IP. All four loans can have an offset account attached at no extra cost, all part of the package.

    In the end (next week) I think I will just use all the funds to buy into my funds now, at these lower prices. I will still have to make those apportions for tax purposes anyway. It was just a thought.

    Many Thanks
     
  8. Billv

    Billv Getting there

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    Gad

    I've just read an article from UK and the EU is now officially in recession.
    So let's see, US in recession, EU in recession, UK in recession, Aust in recession.

    This means that there will be less demand for exports of products out of China & Japan, and this could mean less exports of our raw materials.

    Something is telling me that those cheap shares and funds might just get cheaper...:)

    I wouldn't rush to buy anything atm.

    Cheers
     
  9. Tropo

    Tropo Well-Known Member

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    "Something is telling me that those cheap shares and funds might just get cheaper.."

    Guess what ... You are correct :p:D
     
  10. gad

    gad Well-Known Member

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    That's why I started thinking it might be better to only put in enough when I get a margin call, rather than all in one go.
    Thanks
     
  11. Billv

    Billv Getting there

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    Tropo

    The good news is that this slowdown will force central banks to lower interest rates and this will be good for mortgage holders and investors with margin loans.

    Cheers
     
  12. gad

    gad Well-Known Member

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    The new loans have been established with the extra funds going into an empty account (that pays no interest).
    I have an appointment to see my financial planner in app ten days.

    Would there be any ramification in regards to tax deductability if I was to pay those extra funds back into their loans & do a redraw at a later date?

    My thinking is that there will be no extra Interest if it gets paid back into the loan & a redraw would be regarded as a new loan
    though
    the doc's I signed said that the funds were for investment purposes only, would that matter if I was to pay the funds back into the loans?

    Any thoughts?

    Thanks.