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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:

Updated

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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.

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 October 22nd, 2020
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Loan purpose
Offset account
Loan type
Repayment type
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Interest Rate (p.a.) Comp Rate^ (p.a.) Application Fee Ongoing Fees Max LVR Monthly Payment
homeloans.com.au Low Rate Home Loan with Offset - LVR 60% to 80% (Owner Occupier, P&I)
This loan offers a competitive variable rate and a 100% offset account to help save you on interest repayments. This loan is not available for construction.
2.39% 2.41% $0 $0 p.a. 90% Go to site More info
Suncorp Home Package Plus Fixed - 2 Year Fixed Rate Special Offer $150k+ LVR ≤90% (Owner Occupier, P&I)
A low fixed rate loan available for borrowers with 10% deposits. Refinance to an eligible Suncorp loan and get a cashback of $2,000 or $3,000, depending on your loan amount. Other conditions apply.
2.29% 3.28% $0 $375 p.a. 90% Go to site More info
Bankwest Complete Home Loan Package Variable - $200k to <$750k LVR ≤80% (Owner Occupier, P&I)
A low variable rate loan with a 100% offset account and package discounts.
2.73% 3.18% $0 $395 p.a. 80% Go to site More info
Yard Variable Home Loan - LVR 80% Special (Owner Occupier, P&I)
A very low variable rate loan for home buyers with an optional offset account ($10 monthly fee). 20% deposit required.
2.39% 2.42% $0 $0 p.a. 80% Go to site More info
ING Orange Advantage Loan - $500k to $1M (LVR ≤ 80% Owner Occupier, P&I)
Get a 100% offset account and rate discounts for higher borrowing amounts.
2.54% 2.89% $0 $299 p.a. 80% Enquire now More info
AMP Bank Professional Package Variable Rate Home Loan - $100,000 and above, LVR ≤ 80% incl. LMI (Owner Occupier, P&I)
Get a sharp rate with no application or settlement fee, a redraw facility and 100% offset account. Other fees and charges apply.
2.59% 3.00% $0 $349 p.a. 80% Go to site More info
Macquarie Bank Offset Home Loan Package - LVR ≤ 80% (Owner Occupier, P&I)
Has a 100% offset account which helps you save on the amount of interest you pay on your mortgage.
2.64% 2.91% $0 $248 p.a. 80% Enquire now More info
homeloans.com.au Low Rate Home Loan with Offset - LVR Under 60% (Owner Occupier, P&I)
A competitive rate with no application or ongoing fee. This loan is not available for construction.
2.29% 2.31% $0 $0 p.a. 60% Go to site More info
CUA Achieve Variable Home Loan - $500k+ (Owner Occupier, P&I)
Home buyers can get a competitive, low-fee variable rate plus a 100% offset account. Low deposit option available. Eligible new home buyers with low deposits can apply for the First Home Loan Deposit Scheme with this lender and avoid LMI costs. Eligible refinancers can get a $2,000 pre-paid credit card when they switch to CUA.
2.55% 2.60% $600 $0 p.a. 95% Go to site More info
ING Orange Advantage Loan - $150k to $500k (LVR ≤ 80% Investor, P&I)
Investors can enjoy a 100% offset account, a redraw facility and flexible repayments.
3.24% 3.57% $0 $299 p.a. 80% Enquire now More info
Newcastle Permanent Building Society Premium Plus Package Home Loan - New Customer Offer Discount 1 ($150k+ Owner Occupier, P&I)
$2,000 refinance cashback New borrowers or refinancers can get a discounted rate with this package loan. $2,000 cashback for eligible refinancers borrowing $250,000 or more.
2.94% 3.34% $0 $395 p.a. 95% Go to site More info
G&C Mutual Bank Momentum Home Loan - LVR <50% (Owner Occupier, P&I)
A variable rate loan for owner-occupiers looking to refinance. This loan has low fees and a 100% offset account.
2.55% 2.57% $0 $0 p.a. 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 a competitive, variable interest rate, plus no application fee.
2.54% 2.89% $0 $299 p.a. 80% Enquire now More info
Greater Bank Ultimate Home Loan - Construction Loan (Owner Occupier, P&I)
Build your new home with a variable interest rate and enjoy a 100% offset account. 10% deposit option available.
3.46% 3.88% $0 $395 p.a. 90% Go to site More info
homeloans.com.au Low Rate Home Loan with Offset - LVR 60% to 80% (Investment, P&I)
This investment loan keeps fees low, has a sharp interest rate and comes with a 100% offset account. This loan is not available for construction.
2.54% 2.56% $0 $0 p.a. 80% Go to site More info
Newcastle Permanent Building Society Premium Plus Package Home Loan - Tier 1: below $500k (Owner Occupier, P&I)
$2,000 refinance cashback No application fee and 100% offset account. $2,000 cashback for eligible refinancers borrowing $250,000 or more.
3.77% 4.15% $0 $395 p.a. 95% Go to site More info
ING Orange Advantage Loan - $150k to $500k (LVR 80% ≤ 90% Owner Occupier, P&I)
An offset account and free ATM access in Australia when you have both a home loan and everyday bank account with ING DIRECT
2.64% 2.98% $0 $299 p.a. 90% Enquire now More info

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One Response

  1. Avatarfinder Customer Care
    JeniMay 18, 2019Staff

    Hi Jimmy,

    Thank you for getting in touch with Finder.

    Pty Ltd is different from the sole trader business structure. Being a sole trader allows you to use your individual Tax File Number (TFN) to lodge tax returns unlike company e.g. Pty Ltd.

    I suggest that you also seek professional advice from tax agents if you need further info on this matter.

    I hope this helps.

    Thank you and have a wonderful day!

    Cheers,
    Jeni

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