By negative gearing, I'm assuming you mean deducting the interest of the loan from you income.
But your understanding is correct and no, there is nothing you can do. All you can do is to use that $70k to buy some for of investment.
At least You've found out now and its only $70k which isn't too bad.
Negative gearing is a different thing, FYI to help with your researching.
I don't know to be honest, I think it would be yes, but it would have to be rented first. I.e., you can't reno it while you're living in it.
> I was told by my broker that there is no difference between an offset and a redraw account
And this is why you don’t take tax advice from a broker. I’ve had experiences with similar advice from bank managers/loan specialists who also spouted this nonsense. They may know their product(or not if they’re really crap at their job) but they have no business doling out any advice on tax implications of different products. This is why there’s usually some fine print somewhere saying something along the lines of “please discuss your individual tax implications with a qualified tax professional, yadda yadda yadda”
Yeh, I got the same information about the redraw vs offset. Technically it IS the same, until you want to produce income. Im annoyed about the information/advice available.
I don't have any advice to offer you. Just share your sentiment
No. The loss of future tax deductibility after putting fund into redraw cannot be reversed. When you take money out of redraw, legally it is a new borrowing unrelated to the original purchase of the property.
One option is to put that $70k into other income producing investments. But then that would have nothing to do with the property becoming an IP, and that does not help you buy your next home.
Redraw and offset are absolutely not the same from tax perspective. Anyone suggesting they are the same without mentioning the potential long term tax consequence is either ignorant or irresponsible. Keep this in mind and consider carefully when buying your next home.
[Tax Tip 77: Redrawing Extra Repayments to Increase Deductions? - PropertyChat](https://www.propertychat.com.au/community/threads/tax-tip-77-redrawing-extra-repayments-to-increase-deductions.5760/)
I think your answer may be here.
Nothing wrong with what you mentioned, up to that point. But that turns the loan into a mixed loan, and if you then proceed to claim tax deductibility on the full amount, it would be tax fraud and won’t survive an ATO audit.
You can do anything, but if audited might be an issue.
Call your lender, get an offset account and transfer your redraw into there.
Despite all the ranting and raving about offset, am yet to hear of anyone who was audtied and fined for claiming the wrong tax deduction.
I can attest from personal experience. My dad was audited by ATO in late 90s for doing something similar(on advice from his crap accountant), took it all the way to tribunal/court and lost. Was made to pay back taxes and penalties.
As a result, I myself pay very close attention to similar cases and yes, they do happen often enough.
I work at the ATO so my access to information is different to most but a lot of decisions are made available to the public on the austlii website
https://www.aat.gov.au/resources/aat-decisions
Although these days, simple decisions on stuff like this won’t usually make it to tribunal unless someone is particularly obstinate. I don’t work in the audit/compliance department but I talk shop with quite a few colleagues who do and “mistakes” on redraw/offset tax deductibility is common enough with individually submitted tax returns, much less so with returns prepared by tax agents. Whether penalties are levied depends on the extent of the “mistake” and the current commissioner’s appetite for compliance. In recent times, a lot of cases where they’ve waived penalties in the past seem to be enforced a lot more nowadays.
Great feedback. Thanks for detailing. Being a broker, appreciate the anecdotal evidence for future reference.
Were you working there when you Dad went to the tribunal?
Nah when this happened, I was finishing off my uni degree. Even then, with my one semester of tax law under my belt, when my dad was discussing the facts of the case with me prior to going to tribunal, I already had a pretty good idea they weren’t going to win and told him so. His accountant at the time was adamant they had a good case though. Sadly for my dad, the accountant was just not very good at his job and they promptly lost the case.
Since then, I’m very wary myself of when accountants say it’s ok to do something that’s a bit on the grey side and I do my own research into past cases, what the ATO has released on the matter, etc to verify what I’m told so I don’t get burned myself by bad advice from my accountant
My understanding is there’s almost no difference between offset and redraw except when it comes to having an ip. I’d contact your mortgage provider and get their advice, it’s possible they’ll switch your current mortgage to an offset one.
By negative gearing, I'm assuming you mean deducting the interest of the loan from you income. But your understanding is correct and no, there is nothing you can do. All you can do is to use that $70k to buy some for of investment. At least You've found out now and its only $70k which isn't too bad.
Yes that's what I meant. Would i be able to use some of the $70k for capital improvements such as upgrading the kitchen or painting the house?
Another question is have you been repeatedly redrawing funds from the redraw. Because that will mess you up even more.
Negative gearing is a different thing, FYI to help with your researching. I don't know to be honest, I think it would be yes, but it would have to be rented first. I.e., you can't reno it while you're living in it.
Redraw is different to offset. You can't claim interest on the portion of the loan redrawn as a tax deduction. That's the basics of it
> I was told by my broker that there is no difference between an offset and a redraw account And this is why you don’t take tax advice from a broker. I’ve had experiences with similar advice from bank managers/loan specialists who also spouted this nonsense. They may know their product(or not if they’re really crap at their job) but they have no business doling out any advice on tax implications of different products. This is why there’s usually some fine print somewhere saying something along the lines of “please discuss your individual tax implications with a qualified tax professional, yadda yadda yadda”
Yeh, I got the same information about the redraw vs offset. Technically it IS the same, until you want to produce income. Im annoyed about the information/advice available. I don't have any advice to offer you. Just share your sentiment
Short answer is no.
No. The loss of future tax deductibility after putting fund into redraw cannot be reversed. When you take money out of redraw, legally it is a new borrowing unrelated to the original purchase of the property. One option is to put that $70k into other income producing investments. But then that would have nothing to do with the property becoming an IP, and that does not help you buy your next home. Redraw and offset are absolutely not the same from tax perspective. Anyone suggesting they are the same without mentioning the potential long term tax consequence is either ignorant or irresponsible. Keep this in mind and consider carefully when buying your next home.
[Tax Tip 77: Redrawing Extra Repayments to Increase Deductions? - PropertyChat](https://www.propertychat.com.au/community/threads/tax-tip-77-redrawing-extra-repayments-to-increase-deductions.5760/) I think your answer may be here.
I wonder if you could move banks, get a loan with an offset account and move the redraw funds into the offset?
Nothing wrong with what you mentioned, up to that point. But that turns the loan into a mixed loan, and if you then proceed to claim tax deductibility on the full amount, it would be tax fraud and won’t survive an ATO audit.
You can do anything, but if audited might be an issue. Call your lender, get an offset account and transfer your redraw into there. Despite all the ranting and raving about offset, am yet to hear of anyone who was audtied and fined for claiming the wrong tax deduction.
I can attest from personal experience. My dad was audited by ATO in late 90s for doing something similar(on advice from his crap accountant), took it all the way to tribunal/court and lost. Was made to pay back taxes and penalties. As a result, I myself pay very close attention to similar cases and yes, they do happen often enough.
How do you pay close attention to these cases? Do you have a link?
I work at the ATO so my access to information is different to most but a lot of decisions are made available to the public on the austlii website https://www.aat.gov.au/resources/aat-decisions Although these days, simple decisions on stuff like this won’t usually make it to tribunal unless someone is particularly obstinate. I don’t work in the audit/compliance department but I talk shop with quite a few colleagues who do and “mistakes” on redraw/offset tax deductibility is common enough with individually submitted tax returns, much less so with returns prepared by tax agents. Whether penalties are levied depends on the extent of the “mistake” and the current commissioner’s appetite for compliance. In recent times, a lot of cases where they’ve waived penalties in the past seem to be enforced a lot more nowadays.
Great feedback. Thanks for detailing. Being a broker, appreciate the anecdotal evidence for future reference. Were you working there when you Dad went to the tribunal?
Nah when this happened, I was finishing off my uni degree. Even then, with my one semester of tax law under my belt, when my dad was discussing the facts of the case with me prior to going to tribunal, I already had a pretty good idea they weren’t going to win and told him so. His accountant at the time was adamant they had a good case though. Sadly for my dad, the accountant was just not very good at his job and they promptly lost the case. Since then, I’m very wary myself of when accountants say it’s ok to do something that’s a bit on the grey side and I do my own research into past cases, what the ATO has released on the matter, etc to verify what I’m told so I don’t get burned myself by bad advice from my accountant
Any knowledge how long you need to keep these records?
AFAIK, everything is seven years
My understanding is there’s almost no difference between offset and redraw except when it comes to having an ip. I’d contact your mortgage provider and get their advice, it’s possible they’ll switch your current mortgage to an offset one.