澳洲Australia property Loc or offset? | Sydney

在澳大利亚


I have a loc account attached to my ppr. 3 rents and salary coming in to it and all expenses paid out of it. I live off a CC for the month which is partly cleared at the end of the month.( No fees )

This was set up for me by a Broker. Now I'm reading there is a difference between a Loc and an offset account and could have tax implications later on?

Nothing has been advised by Broker or accountant.

I'm in the process of finding another IP. When I talked to the bank they didn't seem interested in the amount I had paid off the LOC ( $50k )
They looked at the original borrowed amount ( $166k )
I understand their way of thinking. That I could just redraw that 50k at any time.
Is this different with an offset account? Would they take the 50k into account while I would still be able to use it as redraw?

Is this the best set up for me?  

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Be it a LOC or an offset arrangement, banks assess your affordability assuming that either is fully drawn. There's very little difference at that end.

The existing arrangement may be suitable for your needs, although I'll admit that my personal preference is to go with the offset arrangement. In the offset scenario money earned is kept separate from money borrowed. With a LOC the two tend to be combined in the same account.

The main question would be was the LOC set up for investment or personal use? If it's for personal use (to secure your own home for example), then there doesn't appear to be any tax issues. If the LOC was set up for investment use and you're using it as a personal account, then there's a nasty tax issue with it and the interest on the LOC may no longer be tax deductable.  

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Dylan33 said: ↑
I have a loc account attached to my ppr. 3 rents and salary coming in to it and all expenses paid out of it. I live off a CC for the month which is partly cleared at the end of the month.Click to expand...
This is a bad structure and you could potentially have problems with the ATO if audited. The main issue is that you are mixing investment with personal consumption in 1 account. If your accountant can't see this it is time to change him/her. There has being numerous threads about this same issue.  

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Dylan33 said: ↑
I have a loc account attached to my ppr. 3 rents and salary coming in to it and all expenses paid out of it. I live off a CC for the month which is partly cleared at the end of the month.( No fees )

This was set up for me by a Broker. Now I'm reading there is a difference between a Loc and an offset account and could have tax implications later on?

Nothing has been advised by Broker or accountant.

I'm in the process of finding another IP. When I talked to the bank they didn't seem interested in the amount I had paid off the LOC ( $50k )
They looked at the original borrowed amount ( $166k )
I understand their way of thinking. That I could just redraw that 50k at any time.
Is this different with an offset account? Would they take the 50k into account while I would still be able to use it as redraw?

Is this the best set up for me?Click to expand...
Further to what Pete has said


The primary reason why nothing has been advised the the broker or the accountant is 2 fold

Brokers dont give tax adice. Best we can do is flag potential issues and solns, and the borrower is asked to seek their own specific advice

Secondly, almost all bankers, brokers and accountants ( and tax agents) DO NOT dig deep enough to uncover future potential problems.


Currently you dont have one, because the place u are in is an Owner occ.

Unless you will stay in this place as a PPOR for ever, or Never turn it into an IP ( ie sell it when you upgrade) the remnant TAX DEDUCTIBLE debt on the property that started out at 160 will be zero.

This means you will possibly be paying a bunch of Tax on the rent, while having 105 % non tax deductible debt on your new PPOR.

Not ideal.

can be fixed some times.

Easiest to avoid though with the right structure in the first place

ta

rolf  

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agent007 said: ↑
This is a bad structure and you could potentially have problems with the ATO if audited. The main issue is that you are mixing investment with personal consumption in 1 account. If your accountant can't see this it is time to change him/her. There has being numerous threads about this same issue.Click to expand...
You won't have any issues with the ATO unless you try to -ve gear the interest portion of your loan that is incurred in covering the short falls of your IP loans (assuming your IP's are not positive)  

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Article in a few broker publications this morning talking about LOC vs Offset.

http://www.brokernews.com.au/news/newsletter/121595/

The offset arrangement is substantially more flexible for tax purposes, cheaper and requires less discipline to help you pay off your home loan sooner.

The LOC product came out some time in the 90s. At the time many of the banks were concerned that the product wouldn't be profitable because people would pay off their mortgages. The exact opposite happened as in most cases people rarely reduce the LOC product.

Banks push LOCs becuase it's one of their most profitable home loan products.  

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So the difference is having to manually transfer what's left over at the end of the period into a separate account? ( offset )

Where as now I leave it in my ppr mortgage account. There being tax implications because I'm mixing personal and investment moneys?  

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The whole point of the offset account is that even if you use it for personal expenses etc it doesn't matter because your loan is unaffected. With a LOC, however, the mixing can prove disastrous.  

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Hi Dylan33

The structure all has to do with flexibility and future plans, your's currently is as per "Pay your home loan off in 5 years by investing in two properties....or more!"

That may change in the future though?

The LOC gives you access to equity in your property portfolio and a safety buffer if ever needed.

The Offset gives you access to cash in your property portfolio and a safety buffer if ever needed.

If you are equity rich - cash poor, the LOC gives access to a safety buffer when you may not have the cash presently available.

A LOC was our first safety buffer established many years ago that took some of the pressure off, it's essentially a credit card on the side and like all cards needs to be used wisely :)  

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Hi Red

Capping interest is still a viable and "legal" way to to acquire more investment property more quickly

BUT, one needs to be wary of the structure that one uses. The most common methods of debt recycling have come under a fair bit of ATO flack in recent times, and one must make sure your tax adviser is ok with the structure

ta

rolf  
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