Hi, I have a question that I was hoping someone familiar with investment property tax law could advise me on.
I am currently an owner-occupier of my dwelling, but I intend to move out shortly and turn the property into an investment property. I currently have approximately $20,000 sitting in a mortgage-offset account, and if I leave it there it would make the property more or less neutrally geared taking the projected rental income into consideration.
My question is am I allowed to re-draw the $20,000 from the offset account once it becomes a rental property to optimise my tax position? I'm not sure if you're allowed to do this or not. It is my only property currently, and I have been paying principal and interest on the loan up until now.
Hi, I have a question that I was hoping someone familiar with investment property tax law could advise me on.
I am currently an owner-occupier of my dwelling, but I intend to move out shortly and turn the property into an investment property. I currently have approximately $20,000 sitting in a mortgage-offset account, and if I leave it there it would make the property more or less neutrally geared taking the projected rental income into consideration.
My question is am I allowed to re-draw the $20,000 from the offset account once it becomes a rental property to optimise my tax position? I'm not sure if you're allowed to do this or not. It is my only property currently, and I have been paying principal and interest on the loan up until now.
Thanks in advance. wriglet
Are you talking about a redraw facility or an offset account? The difference is crucial.
My understanding is that if you draw down credit for a purpose other than making an investment, the interest on amount of drawdown is forever not tax deductible. I am not aware that it makes a difference whether the loan was currently for an investment or not at the time. Using redraw counts as drawdown, but taking money out of an offset account does not.
The truth will set you free. But first, it will piss you off. --Gloria Steinem AREPS™
Are you talking about a redraw facility or an offset account? The difference is crucial.
My understanding is that if you draw down credit for a purpose other than making an investment, the interest on amount of drawdown is forever not tax deductible. I am not aware that it makes a difference whether the loan was currently for an investment or not at the time. Using redraw counts as drawdown, but taking money out of an offset account does not.
Hi miw,
To clarify my position, the $20,000 is in a separate offset account, and not part of a redraw facility - thanks for clarifying that subtle but important difference.
Ok, so what you seem to be saying is that accessing money from an offset account offers greater flexibility, and should not be subject to restrictions in transforming a property from owner-occupier an to investment. That's my take on it.
If you can find a better use for the money (eg pay down a non tax deductible loan on your new home), then its definitely worth transferring the money from this offset account to the offset account of your own home.
Golden rule is always reduce non tax deductible loans before reducing tax deductible loans.
I put trolls and time wasters on my ignore list so if I don't respond to you, you are probably on it ....
If you can find a better use for the money (eg pay down a non tax deductible loan on your new home), then its definitely worth transferring the money from this offset account to the offset account of your own home.
Golden rule is always reduce non tax deductible loans before reducing tax deductible loans.
Thanks Trojan - that's good advice, I hadn't thought of it in those terms before.
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