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_duffman(Initiate)Initiate
6 Mar 2021

Dear Community Members,

I would be very keen to hear your advice on this question I have. Apologies as it is a little bit complex,

I have an investment property which I initially paid off as a Principal and Interest loan. This was then refinanced to a different bank as a variable interest loan with an offset account.

I took all the money from the offset account to invest in shares last year. As it was for an income generating activity (dividends), the interest from the money is tax deductible. I was not sure whether the interest should be deducted from my investment property loan or the shares.

My question is, when I sell my shares, does my interest from the investment property still tax deductible? I mean the interest is deducted from my investment property, not the shares. I intend to leave the money from selling the shares sitting in my share trading account, which earns no interest.

It has caused me much confusion. Despite reading widely, I still remained befuddled.

Would appreciate some guidance on this one.

4,225 views
6 replies
4,225 views
6 replies

Most helpful response

Most helpful reply

macfanboy(Taxicorn)Taxicorn
6 Mar 2021

@duffman

The reason why you are paying interest is because you used the money for shares, so the interest is deductable against income generated by these.

https://www.ato.gov.au/individuals/income-and-deductions/deductions-you-can-claim/other-deductions/interest,-dividend-and-other-investment-income-deductions/

I wished I had purchased this investment property with the initial structure as interest only with offset. Then in that case, if I take money from offset account, it would be still tax deductible, even if it were for personal reason,

No, it would be apportioned between the investment and personal, you can never claim a interest deduction for personal purchases.

For example; $200,000 loan, $190,000 for investment and $10,000 for a new car:

$190,000/$200,000 x 100 = 95% so only 95% of the interest can be claimed.

No, there is no way to be able to claim interest for personal reasons.

But like I said, the % of the interest that is purely for investment puposes can be claimed as a tax deduction.

Best way forward is to move the money back into the offset account, pay less interest and therefore claim less interest as a deduction, remember deductions do not give you dollar for dollar, at best you would get your marginal tax rate back,

$1,000 interest deduction and on 32.5% tax rate, therefore your taxable income is reduced by $325.

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macfanboy(Taxicorn)Taxicorn
6 Mar 2021

@duffman

I was not sure whether the interest should be deducted from my investment property loan or the shares.

It would be for the shares because that is what you used the money for.

Once you dispose of the shares then the interest is no longer deductible.

Why wouldn't you put the money back into the offset account to reduce any interest?

_duffman(Initiate)Initiate
6 Mar 2021

Thanks very much for your advice!

Just to clarify, when I dispose of my shares, the interest paid for shares would no longer be tax deductible. However, if I leave the money in my share trading account, the interest is being still being paid for my investment property. Given that it is interest only, and the money was taken from the offset account, isn't the original purpose of the loan still there? That is interst for investment property loan, which can still be tax deductible?

P.S. I don't plan to move the money back to my offset account, as I intend to invest in shares again when the time is right, be that be 1 day or 3 years...

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When does an interest from an investment from an offset account stop becoming tax deductible? | ATO Community