How Tax Can Help Your Offset Home Loan

Information verified correct on May 24th, 2017

If you’re a sole trader in business, working with an offset home loan can be the ticket to significant savings on interest. Here’s how:

Offset tax

If you operate under an ABN, chances are you’re required to complete a quarterly BAS (Business Activity Statement) for the ATO (Australian Tax Office). If you’re registered for GST, you will also be holding tax charged on sales on behalf of the ATO until that BAS statement is due. When considering these two elements, think about your existing debts – such as a home loan – and you will find there are savings to be made. Where you store this money and how you control the estimated tax payment for each quarter (represented on your BAS statement) can equate to big benefits to those using an offset home loan.

Also Read: Try Our Awesome Savings on Tax Deductions Calculator

Also Read: How Sole Traders can benefit from the New Budget’s $20,000 claim ceiling

Also Read: How You Could Pay $10,000 for a $20,000 Work Car

What is an offset home loan?

An offset account is similar to a transaction account which reduces the interest payable on your mortgage by ‘offsetting’ the amount held in your account. A reduction in interest charges can shorten your loan term which means you could be in a position to service your mortgage in full, much sooner.

To illustrate, a 100% offset account with $50 000 in it, on a mortgage of $300 000 would see interest only calculated on a balance of $250 000. On a home loan with 5.5% interest over a 30 year term, this could save you approximately $90 000 in interest, with 7 years chopped from your mortgage.

How does an offset home loan work?

The majority of lenders calculate interest on the outstanding balance you owe at the end of each day. The total interest charged for that month is then added together and illustrated on your statement.

Making repayments monthly means your balance is only reduced once per month. However, by committing to fortnightly or weekly repayments, you can reduce your outstanding balance throughout the month and effectively lower the amount of interest payable.

In fact, if you link an offset account to your mortgage and organise for your income to be deposited into the account, you can reduce your mortgage balance even more frequently. This is because interest on a loan is calculated daily, so each day you have funds in your offset account, even if you need to access them later, will help decrease the overall interest payable.

Estimate how much an offset account could save you with the calculator below:

How can I save on home loan interest when holding GST?

As a small business registered for GST, every time you send out an invoice you will charge an additional 10%. This is not your money, however; you are simply collecting it for the ATO and they will ask for it back (unfortunately). Depending on the scope of your business this can add up to thousands if not tens of thousands of dollars of money that you have in your pocket for up to months at a time.

If you have your offset account on your home loan, that money can bide its time sitting against your borrowed money. This lowers your amount owing during the period in which you hold the money.

How to save on home loan interest by managing your BAS?

Every quarter, your BAS statement will arrive with an estimated tax bill for the previous three months and demand that you pay it before the due date. You can alter this amount manually, but it’s a risky business - the ATO does not take kindly to those who alter their expected taxable income down for the year ahead and then get it wrong.

But how does the ATO acquire this estimate? It’s calculated from your last registered taxable income, and the ATO starts at that figure and then assumes your business will grow a small percentage. From this thinking, it derives a figure.

With this in mind, any big business purchases you may be planning – such as a new work ute – are best done prior to June 30; this way it will bring down your taxable income in the following year and as a result, the amount on your quarterly BAS statements. That extra money can sit on your home loan for a year longer than possible if you were to buy that ute on July 1. Hence why #budgetfrenzy is a thing.

Also be mindful of big changes in your business’ taxable income. If you have a very successful year, you may want to delay lodging your tax for that year as long as allowed, as this will prevent the ATO from increasing the estimated tax on your BAS statement for up to three quarters into the following year (depending on your accountant.)

On the flipside, if you have a poor year, you may want to lodge your tax statement in the first week of July and get it in front of the ATO as soon as possible. This will prevent them from estimating your tax at a higher amount from that initial quarter onwards.

The ATO will get all the money it is owed eventually regardless of what you do, but the longer you can have that owed money sitting on your offset Home Loan, the more you are saving each month on interest repayments on your property.

What are your best offset home loan options?

The following home loans offer competitive features, including an offset account, which could help you to effectively maximise your interest savings this financial year.

Rates last updated May 24th, 2017
$
Loan purpose
Offset account
Loan type
Your filter criteria do not match any product
Interest Rate (p.a.) Comp Rate^ (p.a.) Application Fee Ongoing Fees Max LVR Monthly Payment
Newcastle Permanent Building Society Premium Plus Package Home Loan - New Customer Offer ($150,000+ Owner Occupier, P&I)
Apply for a new owner occupier loan or refinance from another lender and receive this discounted rate.
3.84% 4.22% $0 $395 p.a. 95% Go to site More info
3.69% 3.72% $0 $0 p.a. 80% Go to site More info
loans.com.au Offset Variable - Up to 80% LVR (Owner Occupier P&I)
Take advantage a 100% offset account along with no annual or application fee.
3.72% 3.74% $0 $0 p.a. 80% Go to site More info
Mortgage House Advantage Home Loan 80 - Special Owner Occupier
A low interest rate home loan that allows borrowers to borrow up to 80% of the property value.
3.73% 3.88% $300 $10 monthly ($120 p.a.) 80% Go to site More info
Australian Unity Health, Wealth and Happiness Package - (Owner Occupier)
Get a 0.60% discount on your rate, a 100% offset account and no ongoing fees.
3.99% 4.02% $600 $0 p.a. 90% Go to site More info
Beyond Bank Low Rate Special Home Loan
A special low variable rate for owner occupiers with 100% offset account and no application or ongoing fees.
3.83% 3.83% $0 $0 p.a. 70% Go to site More info
NAB Choice Package Variable Rate - $750k+ P&I (Owner Occupier)
Enjoy discounted rates to a range of NAB products. NAB Rewards Points offer available, terms and conditions apply.
4.42% 4.81% $0 $395 p.a. 95% Go to site More info
Mortgage House Advantage Jumbo Home Loan 80 (Special) - Owner Occupier
A variable rate home loan that has no application fees, a competitive variable rate and it offers features such as a redraw facility and a 100% offset account.
3.74% 3.89% $0 $10 monthly ($120 p.a.) 80% Go to site More info
IMB Essential Home Loan - LVR <=90% (Owner Occupier)
Get a discount on your rate and flexible repayment options with this loan.
4.19% 4.19% $0 $0 p.a. 90% Go to site More info
loans.com.au Offset Variable - 80% to 90% LVR (Owner Occupier P&I)
A home loan with no ongoing fees. This loan is available for refinances and purchases.
4.04% 4.06% $0 $0 p.a. 90% Go to site More info
NAB Choice Package Variable Rate - $250k to $749,999 P&I (Owner Occupier)
A great variable package from NAB which includes offset and redraw features. No application fee.
4.47% 4.86% $0 $395 p.a. 95% Go to site More info
CUA Fixed Rate Home Loan - 2 Year Fixed (Owner Occupier)
A fixed home loan with no ongoing fees and flexible repayments options.
3.84% 4.71% $600 $0 p.a. 95% Go to site More info
ANZ Fixed Rate Home Loan - 2 Year Fixed (Owner Occupier, P&I)
Lock in your rate for 2 years with an interest only option.
4.03% 5.08% $600 $10 monthly ($120 p.a.) 95% Enquire now More info
Commonwealth Bank Wealth Package Fixed Home Loan - 2 Year Fixed (Owner Occupier) P&I
A package home loan with fee free extra repayments available during the fixed term.
3.99% 5.01% $0 $395 p.a. 95% Enquire now More info
St.George Fixed Rate Advantage Package -  2 Year Fixed Rate (Owner Occupier, P&I)
A discounted package rate for owner occupiers with the ability to package a Qantas rewards earning Amplify credit card. $1,500 cash back available for refinancers, conditions apply.
3.99% 5.04% $0 $395 p.a. 95% Enquire now More info
Was this content helpful to you? No  Yes

Related Posts

Ask a Question

You are about to post a question on finder.com.au

  • Do not enter personal information (eg. surname, phone number, bank details) as your question will be made public
  • finder.com.au is a financial comparison and information service, not a bank or product provider
  • We cannot provide you with personal advice or recommendations
  • Your answer might already be waiting – check previous questions below to see if yours has already been asked

Disclaimer: At finder.com.au we provide factual information and general advice. Before you make any decision about a product read the Product Disclosure Statement and consider your own circumstances to decide whether it is appropriate for you.
Rates and fees mentioned in comments are correct at the time of publication.
By submitting this question you agree to the finder.com.au privacy policy, receive follow up emails related to finder.com.au and to create a user account where further replies to your questions will be sent.

Ask a question
feedback