oops i might have made a mistake

[jasperjue]

I recently came into a reasonable bit of money which went into my transaction account. I then in a "brainwave" set up the transaction account as an offset account linked to my IP's to temporarily save on interest repayments.
Now i have a passing recollection that this is not a good thing as the initial balance in the offset account (when the large amount of money went in) is taken as a principal repayment on the IP's and any transactions after that which are not IP related are then classed as personal and therefore the remaining loan balance is not deductable.

Are there issues around offset accounts and IP's ?.

 

[The Y-man]

I think offsets are ok - not counted as principal repayments.... but i am no expert!

Cheers,

The Y-man

 

[HiEquity]

I agree with Y-M. It is only LOCs where you have issues with principal repayments conflicting private vs business purposes as you are actually repaying the loan in that case.

But I am also no expert...

 

[vaztr]

Hi HiEquity

The only prob I can think of is this....

If you have a debt against your PPOR then the offset would be best against this because you can't claim a tax deduction on the interest on this account. If you put the offset against your IP then you are losing the 'taxdeductability' of the interest you aren't being charged.

If you don't have a debt against your PPOR then this isn't a problem - other than maybe that you should borrow against is and go get more property

VAZ

 

[PrimeCommercial]

Agree with the two posts above, afaik an offset account is just like any other savings account separate from a mortgage, just think of it as the interested paid on the balance in the account is the same as the interest on your mortgage, effectively cancelling each other to a certain amount and without paying income tax on the interest recieved.

So shouldnt have anything to do with principle/capital/equity in the IP.

 

[jasperjue]

Thanks for the replies, i'm a bit happier now.

I have planned to send the bulk of the money out of the IP offset and over to the PPOR offset now that its been set up. There was just a timing issue and the fact that my transaction account and my IPs were with the same bank. I have to now shift my transactions (direct debit details, bpay details) over to the other bank which is holding my PPOR which is quite simply a pain in the neck. Its on my "things to do list" right next to "poke myself in the eye with a blunt stick".

thanks again and happy investing....we're all going to be crushed in the Global House Crash though i hear.