Tax Ruling 2000/2 - Tax deductions eligibility (offset account)

Hi,

This is my first post on the forum. I have searched for a similar thread to look for answers and responses. And a minor doubt still persist. Hope to get some comments or views from the excellent community.

Situation:
1.
I am refinancing a loan on my Prime Place of Residence for 3 years Fixed Rate (6.2%) Interest Only with 100% offset facility. Purchase Price 420K, Current Valuation 535K. Loan outstanding 280K. This allows me to unlock 148K of equity. I currently have 100K of funds sitting in my offset account (personal saving).
2.
At the settlement of refinancing, I will thus have a loan set up of 428K and additional cash out for property investment of 148K (428-235). My Offset account will then have 248K (148 + 100).
3. I plan to buy investment property in 3 months and would like to pay the deposit for the investment property from the money in the offset account (linked to the loan account of 428K). Let say this deposit is 50K.


Question
1. Since the 50K is towards an income producing asset can the interest be tax deductible?
2. My issue is that when I read the Tax Ruling 2000/2 it appears that the additional cash out available from refinancing has been merged with my personal savings and hence the nexus is broken (borrowed money vs own savings). It would then be difficult to justify that the deposit to the investment property is the borrowed money.

Any comments would be highly appreciated.

Regards,
sandydubes

 

1. $50k is not borrowings so there is no interest associated with this.
2. It couldn't be borrowings because you borrowed it previously and then placed it in a savings account and mixed it with other funds.

The interest on your PPOR home loan would actually increase if you take this $50k out of the offset. This won't be deductible either as this is a personal non deductible debt.

A far better way to do this is to keep the loan at $280k and then set up a LOC as a separate split and this can be used for investments - don't use it for personal expenses or you will contaminate it.

 

Why refinance your PPOR? Why not just use the $255 equity as part security and borrow 100%, interest only, for the investment property.