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Structuring IP loan

Discussion in 'Accounting, Tax & Legal' started by frankie, 8th Jan, 2008.

  1. frankie

    frankie Member

    Joined:
    14th Oct, 2007
    Posts:
    9
    Location:
    sydney
    From my readings on this forum, I just wanted to double check that if I have an IP loan (its a redraw interest only loan) and its linked to an offset account. Interest comes out of the offset account and rent goes in to the offset account. Can I pay my salary/income etc into the offset account and use it as I please as long as the loan account stays essentially untouched and seperate (but linked)?
    OR do the ATO also look at the offset account and its funds usage to determine the gearability of the loan account?

    Thanks
    Frankie
     
  2. tonyused

    tonyused Active Member

    Joined:
    9th Jan, 2008
    Posts:
    32
    Location:
    Perth, Western Australia
    The tax deductibility of the interest on the loan is based on what the funds are used for. If all used for the investment property then all the interest is deductible.

    An interest only loan or reducing loan is OK even if linked to an offset account.

    Line of credit loans will be a problem if used to buy an IP. Then future uses of the funds would have to be analised to check for tax deductiblity of the overall interes.
    Do not use LOC loans for long term investment purposes, have a set loan for this.
     
    Last edited by a moderator: 9th Jan, 2008
  3. taxstar

    taxstar Active Member

    Joined:
    9th Nov, 2007
    Posts:
    25
    Location:
    Sydney, NSW
    Hi Frankie

    I would first use the offset facility against your home loan (the one you live in) first, before considering to use the offset facility on your IP.

    The reason for this is that you are reducing your non-deductible interet rather than your deductible interect.

    Taxstar
     
  4. Bantam Roosta

    Bantam Roosta Well-Known Member

    Joined:
    7th Feb, 2007
    Posts:
    115
    Location:
    Canberra, ACT
    Yes, you can us your offset account for whatever you want. You can pay your salary into it, buy McDonalds using it, pay your interest from it, not pay your interest from it, put your rent in there, or not. Doesn't matter. It has nothing to do with the 'gearability' of the loan account.

    Put all your spare cash in there, so that it is working for you, regardless of your future intentions for that cash.

    BR