How tax can help your offset home loan

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 the amount on which home loan interest is charged 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. 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 if you were to buy that ute on July 1. Hence why #budgetfrenzy is a thing.

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 December 17th, 2018
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Interest Rate (p.a.) Comp Rate^ (p.a.) Application Fee Ongoing Fees Max LVR Monthly Payment
SCU My Life Variable Rate Home Loan Package - $150,000+ (Owner Occupier, P&I)
Get a low variable interest rate and buy a property with just a 10% deposit. 100% offset account attached.
3.59% 3.63% $495 $0 p.a. 90% Go to site More info
Tic:Toc Live in Loan Variable Rate - Principal & Interest
Adding an offset account costs $10 a month. Go from application to approval in as little as 20 minutes with a variable rate loan from this innovative online lender.
3.57% 3.58% $0 $0 p.a. 80% Go to site More info
Homestar Finance - Variable Owner Occupier Offer $900 Cashback
Get a competitive rate, save on fees and access a 100% offset account plus redraw facility. $900 cashback offer.
3.54% 3.58% $0 $0 p.a. 80% Go to site More info
Mortgage Choice Plus Home Loan - OO LVR <=70% ($150k+) P&I Only
A variable rate home loan that has a lot of flexible features. This loan has a 100% offset account.
3.71% 3.71% $0 $0 p.a. 70% Enquire now More info
loans.com.au Offset Variable - Up to 80% LVR (Owner Occupier P&I)
Save on interest by taking advantage of a 100% offset account along with no ongoing fees or application fees.
3.72% 3.74% $0 $0 p.a. 80% Go to site More info
Macquarie Bank Offset Home Loan  - LVR ≤ 70% (Owner Occupier, P&I)
Borrowers with a 30% deposit can get this competitive rate. Cut down on interest costs with a 100% offset account.
3.75% 4.00% $0 $248 p.a. 70% Enquire now More info
Virgin Reward Me Variable Home Loan - LVR <= 80% ($500k to $750k Owner Occupier, P&I)
Earn Velocity Frequent Flyer Points with this mortgage to spend on flights and more (for a limited time, subject to eligibility requirements). Redraw facility available on this variable rate home loan. Competitive interest rate.
3.68% 3.82% $0 $10 monthly ($120 p.a.) 80% Enquire now More info
Mortgage Choice Plus Home Loan - OO LVR <=80% ($150k+) P&I Only
A home loan with a competitive rate and plenty of handy features. This product comes with a 100% offset account.
3.81% 3.81% $0 $0 p.a. 80% Enquire now More info
ME Flexible Home Loan With Member Package - LVR <=80% $400k up to $699,999 (Owner Occupier, P&I)
Unlock a range of savings with this competitive package home loan offer. Offset account and redraw facility included.
3.69% 4.12% $0 $395 p.a. 80% Go to site More info
Tic:Toc Live in Loan Fixed Rate - 2 Years (Owner Occupier, P&I)
Fast, 100% online application process. Very limited fees. Optional offset account (with fee).
3.64% 3.59% $0 $0 p.a. 80% Go to site More info
AMP Professional Package Variable Rate Home Loan - $500,000 to $749,999 (Owner Occupier, P&I)
Get a sharp rate plus package discounts and a 100% offset account.
3.74% 4.13% $0 $349 p.a. 90% Enquire now More info
Well Home Loans Balanced Variable - (Owner occupier, P&I)
A very low variable interest rate for borrowers with a 20% deposit. Add a 100% offset account for $10 a month.
3.49% 3.53% $250 $0 p.a. 80% Go to site More info
ING Orange Advantage Loan - $150k to $500k (LVR 80% <= 90% Owner Occupier, P&I)
Get a 100% offset account, access to a redraw facility and a competitive rate tied to your LVR.
3.88% 4.20% $0 $299 p.a. 90% Enquire now More info
3.89% 4.27% $0 $395 p.a. 80% Go to site More info
Virgin Reward Me Variable Home Loan - LVR <= 80% ($750k+ Owner Occupier, P&I)
Earn Velocity Frequent Flyer Points on your mortgage (subject to eligibility requirements). Plus, access a 100% offset account to save on interest.
3.64% 3.78% $0 $10 monthly ($120 p.a.) 80% Enquire now More info
ClickLoans The Online Home Loan - LVR <70% with Offset
Enjoy all the benefits of the Basic Home Loan and take advantage of an offset account.
3.70% 3.90% $0 $0 p.a. 70% Go to site More info
Virgin Reward Me Variable Home Loan - LVR <= 80% (<$500k Owner Occupier, P&I)
Borrow up to $500000 and earn Velocity Frequent Flyer Points (terms and conditions apply).
3.73% 3.87% $0 $10 monthly ($120 p.a.) 80% Enquire now More info
Bankwest Complete Home Loan Package Fixed - 2 Year Fixed Rate LVR <90% (Owner Occupier, P&I & $200k+)
Lock in a very competitive 2 year rate and get package discounts on your credit card and offset account. $1,500 cashback available (conditions apply).
3.88% 4.51% $0 $395 p.a. 90% Go to site More info
NAB Choice Package Variable Rate - $250k to $749,999 P&I (Owner Occupier)
A low deposit package home loan. Combine your loan to get discounts on your interest rate and other NAB financial products.
4.39% 4.78% $0 $395 p.a. 95% Go to site More info
ING Orange Advantage Loan - $150,000 to $500,000 (LVR <=80% Owner Occupier, P&I)
Get a 100% offset account and rate discounts for higher borrowing amounts.
3.78% 4.10% $0 $299 p.a. 80% Enquire now More info
ANZ Fixed Rate Home Loan - 2 Year Fixed (Owner Occupier, P&I)
Get a 2-year fixed rate with flexible repayment options to help you save.
3.90% 5.14% $600 $10 monthly ($120 p.a.) 95% Enquire now More info
ClickLoans The Online Investor Home Loan - LVR <70%
Investors can get a 100% offset account and a low rate if they have a big deposit. 100% online application process.
3.98% 3.98% $0 $0 p.a. 70% Go to site More info
Beyond Bank Low Rate Special Home Loan - LVR ≤ 80% (Owner Occupier)
Access an offset account and pay no application or ongoing fees on this special variable rate for owner-occupiers.
3.79% 3.79% $0 $0 p.a. 80% Go to site More info
NAB Choice Package Variable Rate - $750k+ P&I (Owner Occupier)
Enjoy discounted rates on a range of NAB products with a package loan. Get this loan with a 5% deposit.
4.34% 4.74% $0 $395 p.a. 95% Go to site More info
loans.com.au Offset Variable - Package Offset (Investment, P&I)
Package your owner occupied loan with investment loan and receive a discounted investment rate. 100% offset account included.
3.97% 3.99% $0 $0 p.a. 80% Go to site More info
ClickLoans The Online Investor Home Loan - LVR <80%
Investors get a 100% offset account and pay no application or ongoing fees on this loan from an innovative online lender.
4.18% 4.18% $0 $0 p.a. 80% Go to site More info
AMP Professional Package Variable Rate Home Loan - $750,000 and above (Owner Occupier, P&I)
Package your loan with other AMP products and save on rates and fees.
3.69% 4.08% $0 $349 p.a. 90% Enquire now More info
Tic:Toc Investor Interest Only Variable Rate Home Loan
Adding an offset account costs $10 a month. A variable interest-only loan for investors. Fast application, low fees, optional offset account. 100% online lender.
3.99% 3.92% $0 $0 p.a. 80% Go to site More info
ME Flexible Home Loan Fixed - 2 Year Fixed Rate (Owner Occupier, P&I)
Access a fee-free 100% offset account and pay no application or ongoing fees.
3.99% 4.86% $0 $0 p.a. 80% Go to site More info
4.65% 5.02% $0 $395 p.a. 95% Go to site More info
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