Why Property Investors Should Always Have A 100% Offset Account


Why Property Investors Should Always Have A 100% Offset Account

Most of us buy an investment property since it offers us the ability to obtain a taxes deduction for the ongoing interest expense on the amount of money that we borrow whenever we purchase the property. Our expectations are that the value of the house will increase as time passes and that we will make a nice capital gain and obtain higher rents in the foreseeable future – sound thinking. Without entering every one of the detail a debtor can state a tax deduction for interest with an investment property loan because it’s a cost (allowable deduction) incurred in getting what’s known as Assessable Income.

This is described in the Tax Act, however in regards to an investment property, the Assessable Income test is usually the local rental income you obtain or be prepared to receive from the property. It’s important to know that Assessable Income will not include capital increases. This is dealt with under Capital Gains Tax (CGT) rules and not the income tax rules, so you’ll need to keep this in mind and seek advice where necessary when deciding to buy an investment property. There is a common misconception that the property which has been used as security for the investment loan is the important issue, however in most situations this is very irrelevant almost.

When determining if the interest on financing is taxes deductible its critical to know what is the purpose of the loan, as this will determine if the interest is tax deductible. For example, you can borrow on your principle place of home and use these funds to purchase an investment property.

The security for the loan is your home but the purpose should entitle one to a deduction on the interest with this loan. Of course you’ll need to keep accurate records of how loan money are disbursed which means you can show these to the tax office regarding an audit. You should also consider these implications at times when you are re-financing loans to ensure that a tax deductible loan purpose is not accidently changed.

  • Foreign employment income (Form 2555)
  • Ensure 180 days of employment to a member of each household living below the poverty collection
  • Why do you want to go in to the investment bank
  • How ETFs work
  • Submit an online transfer (Steps 10 – 15)
  • Bedok Point

Now that people have a basic understating of why we get a tax deduction with an investment property loan let consider why every property buyer should have an Offset Account. The Offset Account helps to ensure we do not unintentionally modify the loan purpose as well as assisting us keep clear and different records.

This is most beneficial illustrated by an example below. 750,000.The interest on this loan is still taxes deductible even though the investment property is not mortgaged, because the goal of the loan was to buy an asset that will produce assessable income. 300,000 in order to save interest. He could be now on his mortgage and can re-draw funds as he loves ahead. 200,000 component of the loan has now changed. 200,000 loan which is not tax deductible.

500,000 tax deductible debt and in the process created a bit of an accounting nightmare. When he makes future repayments against the loan, there is no clear way to determine whether he could be reducing the original tax deductible loan or the non-taxable loan. Bob will claim that he wants to repay the loan on which he does not get a tax deduction, but the taxes office may determine in any other case.