Hey there, thanks for watching, and I hope you find this video helpful. 😊 This video highlights the traps with the redraw facility; however, I do not want to leave you with the perception that the offset account is better and should be used in all circumstances. Therefore, I created another video, 'Redraw vs. offset account- which wins?' to give you balanced views and explain why both are necessary for different strategic purposes. Check it out here! kzitem.info/news/bejne/0qlpq3lufJWGfI4&ab_channel=RuiShi
@bzgl8481
Ай бұрын
However, if you use the offset from your principal home loan to invest in another property, you would lose the interest deduction. This is because the funds sourced from an offset account, which is considered a transaction account, are not regarded as a loan. In such a case, the redraw will be considered a loan for investment purposes.
@OZRuiShi
Ай бұрын
Thank you for pointing this out. I made another video called "Redraw vs Offset - Why You Need Both" to address this. I realize this video might not be balanced enough and might suggest ditching redraws altogether, which isn't the intention.
@bzgl8481
Ай бұрын
@@OZRuiShi Thanks
@trythis2821
3 ай бұрын
Offset account good, redraw facility bad for investment loan if negatively geared. Logs into investment property loan and sees two offset accounts and breathe a sigh of relief.
@JohnLee-es4qs
2 ай бұрын
Here is a fun scenario, if John had indeed overpayed his loan, and withdrawn for non-income generating purposes creating a mix purpose loan, would topping up the loan, then renting out part of the property to claim a deduction on sq meter rental usage of the property to apportion to loan interest in the attempt to claim a deduction on that percentage of the new loan interest amount
@OZRuiShi
2 ай бұрын
Very interesting scenario indeed. Let's say John's original loan amount was $500k, and he paid it down to $300k. Then he withdrew $50k for a holiday, leaving a loan balance of $350k-$300k related to the purchase of the property and $50k for the holiday. If John rents out 30% of the property, he needs to consider two things: 1. Part of the capital gain will be taxable when he sells the property. 2. Only the interest on 30% of the $300k is tax deductible. If, as you mentioned, John tops up the loan by taking further money out of the redraw to increase the loan balance (say by $150k), whether the interest on this $150k is tax deductible depends on what he does with it. If it is used for income-producing purposes, then it is tax deductible; if not, it won't be. Hope this makes sense. This is my understanding, but as I am not an accountant, please double-check with your accountant. 😊
@craigkrause7434
2 ай бұрын
Fantastic video! Please make and share more of these 😊
@OZRuiShi
2 ай бұрын
Thank you! Will do! 😊
@TheMemeGuy124
14 күн бұрын
Only advantage of redraw is it lowers the monthly payments. Unless you have stretched cashflows don’t bother about redraw accounts.
@OZRuiShi
14 күн бұрын
Thanks for your comment. I recommend watching this video to learn about other uses of a redraw account. ►Redraw vs offset account - Why you need both kzitem.info/news/bejne/0qlpq3lufJWGfI4&ab_channel=RuiShi
@jamespopovic9750
Ай бұрын
Excellent video, keep up the good work 👌
@OZRuiShi
Ай бұрын
Thank you so much! I appreciate your support and encouragement! 😊
@herbertvonsauerkrautunterh2513
3 ай бұрын
I have offset amounts and redraw for all my mortgages and use that to redraw only to invest in income producing assets. I know all this already. I would redraw from my principal home loan for personal items as I will not turn it into an investment property. It's nearly paid off anyway
@OZRuiShi
3 ай бұрын
Yay, you are doing all the right thing!😊
@mannix601
2 ай бұрын
Hu Rui, thanks for this valuable info. My wife and I really appreciate it. btw, I have one question, if you have a principal residence valued at $500K and you set up a $100K redraw facility, then withdraw the $100K to invest in a property, does this mean your principal residence is now a mix of non-tax-deductible and tax-deductible debt? Can you get a tax deduction for the $100K?
@OZRuiShi
2 ай бұрын
Hi there, thanks for reaching out and for the kind words. I'm glad you found the information valuable. To answer your question, if the loan is not split, withdrawing $100K to invest in a property does create a mixed loan. The interest on the $100K is tax-deductible, but complications can arise later. For example, if you have an additional $20K to put into the loan, you generally would want that to reduce your non-deductible debt. However, with a mixed loan, you can't choose if the $20K goes towards the $400K home loan or the $100K investment loan. It will reduce the total $500K loan by proportion, meaning $16K will reduce the non-deductible part of the loan, and $4K will reduce the deductible part. Therefore, it's always a good idea to split the loan first before using a home loan to invest. This way, one can keep the tax-deductible and non-deductible parts separate and manage the repayments more effectively. Hope this helps! 😊
@mannix601
2 ай бұрын
@@OZRuiShi thanks for clearing that up. now, I know now what to do. Sadly, we've been doing it wrongly. hehehehe. Good thing you are here sharing this info. thanks again.
@OZRuiShi
2 ай бұрын
@@mannix601 You're welcome! I'm glad I could help clarify things for you.
@lincolncarolan8341
3 ай бұрын
If you do make the mistake of putting money into redraw, how can you convert that money back into tax deductible money? Can you do a video on this please.
@OZRuiShi
3 ай бұрын
Hey there, thanks for watching and for the great question! If there's enough interest, I'll definitely make a video on how to convert money from a redraw into tax-deductible funds. In the meantime, it's a good idea to check with your accountant or financial adviser for immediate advice. x
@trythis2821
3 ай бұрын
@@OZRuiShi My understanding is the purpose the funds are used for, if is for generating more income is fine. For example, renovation or maintenance of the investment property are allowable as are fully franked shares.
@LeNa-fd1mf
2 ай бұрын
@@OZRuiShiHi, please make a video of how to convert redraw into a tax-deductable fund. Thanks for your informative videos.
@OZRuiShi
2 ай бұрын
@@LeNa-fd1mf Thank you for the suggestion! There's a video in the pipeline that will address this point. Stay tuned!
@kenehnsklp5530
3 ай бұрын
I recently found that my bank set up a redraw instead of offset for me. Bad taste in my mouth! I dont want to deal with them anymore. They don't look out for your interest.
@OZRuiShi
3 ай бұрын
I'm really sorry to hear about your experience-that must be disappointing. Unfortunately, in this day and age, we need to advocate for ourselves when dealing with banks. Understanding your financial options is key to ensuring your needs are met. I hope future interactions are more positive! x
@rayfeetrono259
3 ай бұрын
Very insightful! Thank you, Rui! Makes me wonder why even go with Redraw facility from start if it doesn’t even have significant advantages over offset account.
@OZRuiShi
3 ай бұрын
Hi there, thanks for watching, and I'm glad you found it insightful! Offset accounts are better for 'keeping a loan clean' from a tax deductibility perspective, which is the focus of this video. However, redraw facilities are essential if you want to implement a debt recycling strategy. I'll be releasing a video on that topic soon, so don't write off redraw facilities just yet! 😊
@xsaviour755
3 ай бұрын
If you have 0 chance to make your family home into investment then redraw wins.
@ANUSHELINCHETTY
2 ай бұрын
Hey Rui, Great video. Quick question. If you setup your loan PPOR account without redraw but with an offset, wouldn't you effectively be paying the principal on the loan down faster by having funds in the offset? When you setup a loan account with redraw and linked offset then the interest savings by having funds in an offset effectively build the redraw balance over time, assuming the repayments are kept the same?
@OZRuiShi
Ай бұрын
Hi there, thank you for your question and for watching the video! You are correct in both statements. Having funds in an offset account effectively reduces the interest you pay, which means more of your repayments go towards paying off the principal, thus paying down the loan faster. When you have a loan account with a redraw and a linked offset, the interest savings from the offset build up the redraw balance over time, assuming the repayments remain the same. Hope this helps!😊
@JohnLee-es4qs
2 ай бұрын
John should have picked up the phone and checked in with you before overpaying into his owner occupied loan 😂
@OZRuiShi
2 ай бұрын
😂Opps!
@craigkrause7434
2 ай бұрын
Hi Rui 😊 Need some advice if possible, please. I’m currently paying off two mortgages and am hoping to have them all paid in full in the next couple of months. Am also wanting to purchase a nice block of land and to eventually build my dream home on for retirement. My question is; is it better to pay off these loans in full prior to purchasing this block, or to borrow against my assets and use the equity to make this purchase? Any assistance they you can provide would be greatly appreciated 😊 Thank you. Regards, Craig
@OZRuiShi
2 ай бұрын
Hi Craig, thank you for your question! While I can't provide specific financial advice and would need more information to give a detailed answer, I can offer some general thoughts. Paying off the loans in full won't stop you from borrowing against the assets later. However, if you borrow against these assets to build your dream home, it’s considered personal use, and the interest on those loans won't be tax deductible. If I could go back in time, I would almost never pay directly into the loan but instead save money inside an offset account. 😊 Hope this helps!
@craigkrause7434
2 ай бұрын
Thank you so much for your reply, Rui! 😊 really do appreciate it Do you have an actual email address that I can discuss this further please?
@OZRuiShi
2 ай бұрын
@craigkrause7434 Hi Craig, I am no longer a financial planner, so I won't be able to provide personalized advice. Australian law is very strict on this, and staying on the good side of the regulations helps me continue to provide free educational videos like these. Feel free to provide more information here, and maybe I can draw some inspiration to create a video that can help you and others in a similar situation. Thanks for understanding! 😊
@jewel_2983
Ай бұрын
Is this tax issue only a problem if you end up doing an investment property? I have an owner occupied house/mortgage with redraw. If I have extra funds in the redraw and withdraw some of it to buy for personal use (food, car etc) why would I be taxed?
@OZRuiShi
Ай бұрын
Thank you for your question! You won't be taxed as such for withdrawing funds from your redraw to buy for personal use like food, car, etc. The tax issue only arises if you later convert your owner-occupied house into an investment property. In that case, the interest on the portion of the loan used for personal use would not be tax-deductible. Hope this clarifies things!
@darrinaspery378
3 ай бұрын
Hi thank you very much for the video. We have just purchased our first investment property using equity from our own home. It is split into three loans our own home loan equity loan with principal and interest the balance of the investment property is interest only. We have a redraw or. offset account. link to the whole three options which one would we put all our pay into?
@OZRuiShi
3 ай бұрын
Hey there, thank you for watching and for your question! If I understand correctly, there are three loan splits involved: 1. Principal residence home loan with both an offset and redraw. 2. Equity loan against your principal residence, used to purchase an investment property, also with an offset and redraw. 3. Investment property loan, again with an offset and redraw. Given this setup, pay should be directed into the offset account linked to Loan 1, as this is the only non-deductible debt. Avoid using the redraw for Loan 1, as this might complicate your tax situation in the future, a point I explain with example #1 in this video. Hope this helps clarify things! However, please note that my comment does not substitute for professional advice. You should always double-check with your accountant and adviser! x
@darrinaspery378
3 ай бұрын
@@OZRuiShi thank you very much for replying. You have answered my question perfectly. I’m so glad I found your videos online. Keep up the good work and thank you again. 🤗👍
@OZRuiShi
3 ай бұрын
You are very welcome! 😊
@MarkBrown-gc6hr
21 күн бұрын
Hi Rui. Thanks for the information. So as long as I use the money in my redraw account for income producing purposes I can claim the interest on the redraw as a tax deduction? The ATO treats this as a " new borrowing,".
@OZRuiShi
20 күн бұрын
Hi! Thanks for your question. Yes, as long as you use the money in your redraw account for income-producing purposes, you can generally claim the interest on the redraw as a tax deduction. The ATO treats this as a "new borrowing," so it's important to ensure the funds are used for an eligible investment purpose. Always good to check with your accountant for personalized advice.
@jackwsurfs
12 күн бұрын
Hey Rui, I have a question. I bought my first home (an investment property, $500,000 mortgage) a bit over a month ago now. I've only just realised I've put all of my additional savings (~$80,000) into the redraw rather than the offset account. From my understanding - this means if I need to access those funds for non-investment purposes (or simply transfer the money to my offset), I lose out on tax deducting the interest for the amount withdrawn. Is there a way of transferring those funds from redraw to offset, without sacrificing the tax deductible interest on the $80,000? Thanks for another great video!
@OZRuiShi
10 күн бұрын
Your understanding is spot on! Unfortunately, once the funds are in the redraw, there's no way to transfer them to an offset account without potentially losing the tax-deductible status on that $80,000. However, you might consider using those funds for investment purposes, like paying expenses on the investment property, to maintain the deductibility. Another option to explore with your tax accountant or broker is splitting the loan to manage this issue more effectively. I’m planning to cover mixed loans in a future video, so stay tuned!
@jackreaper2890
3 ай бұрын
Would you still be able to deduct the interest of the loan if you use the redraw facility to purchase shares in the share market?
@OZRuiShi
3 ай бұрын
Hey there, that's a great question. If the loan is an investment loan and the shares you purchase are income-producing assets, i.e., paying dividends, yes, you can continue to deduct the interest on the loan if you use the redraw facility to purchase those shares. If the shares do not pay dividends, you won't be able to claim tax deduction on the interest, but you can capitalize the interest to be added to the cost base. If the loan is a home loan, then you are entering 'debt recycling' territory, and it is better to split the loan before using the redraw facility to buy shares. I will release a video about debt recycling in the near future. Stay tuned.😀
@roblee3395
3 ай бұрын
Great video, thank you. If I use the redraw to pay a Property Buyers Agent, is that amount still tax deductible?
@OZRuiShi
3 ай бұрын
Thank you for watching and for your question! Whether the amount is tax deductible depends on whether the property buyer's agent is used for purchasing a principal residence or an investment property. If it's for a principal residence, then no, the interest is not tax deductible. If it's for an investment property, then yes, it would be deductible. However, please keep in mind that my response is based on my knowledge and understanding. Please double check with your accountant. 😊
@tonydi2792
3 ай бұрын
If you have a redraw facility, does asking for an Offset account to be added usually need to go through a 'refinance'? Good video btw, very helpful.
@OZRuiShi
3 ай бұрын
Hey there, thanks for watching and great question! It depends on your loan product. Some simpler loan products do not offer offset accounts. If this is your case, you might have to refinance. If your loan product offers an offset account feature and you didn't take it up before, you can request to add one. As always, it's best to ask your lender or your broker for specific guidance. Hope this helps. 😊
@antpoo
3 ай бұрын
Don’t refinance ever. Your amortisation will reset and you will be back to paying very high interest vs principle. Regardless of tiny deduction in repayment. Offsets don’t need new loans, nor does it stop you from negotiating your rate. I just had mine reduced from 8.49% to 6.54%, It took a 20 min visit.
@bevis90
29 күн бұрын
@@antpoowhich bank
@antpoo
29 күн бұрын
@@bevis90. But I think I know the reason they reduced so much. It’s because my offset was exactly 50% of what I still owed. So the higher the rates went the more the bank had to pay me. Soon the interest rates worked in my favour to pay the loan off quicker. That’s why they reduced 2%
@bevis90
26 күн бұрын
@@antpoo oh righto I just refinanced from 7.80% to 6.4% and that was with the big 4 banks
@jamesstanley11
Ай бұрын
Offset offset any recommendations cutie
@OZRuiShi
Ай бұрын
Thank you for your comment! For recommendations on offset accounts, it's best to compare various loan options from different banks to see which one suits your needs the best. Always look at the features, fees, and benefits they offer. 😊
@AustralianLDARer
3 ай бұрын
hi If I put money in the redraw does it reduce my monthly repayments? Thank you and great video!
@OZRuiShi
3 ай бұрын
Hey there, thanks for watching and great question! Putting money in the redraw does not automatically reduce your monthly repayments. If you want to reduce them, you can request it from your lender, and your available redraw balance will decrease over time. Hope this makes sense. 😊
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