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 August 21st, 2017
Loan purpose
Offset account
Loan type
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Interest Rate (p.a.) Comp Rate^ (p.a.) Application Fee Ongoing Fees Max LVR Monthly Payment Offset Variable - Up to 80% LVR (Owner Occupier P&I)
Take advantage of a 100% offset account along with no annual or application fees.
3.72% 3.74% $0 $0 p.a. 80% Go to site More info
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.
3.74% 4.12% $0 $395 p.a. 80% Go to site More info
Reduce Home Loans Rate Buster 100% Offset Variable Home Loan - Up to $750k (LVR <=80%)
Borrow up to 80% LVR with no ongoing fees and a 100% offset account.
3.54% 3.54% $440 $0 p.a. 80% Enquire now More info
IMB Accelerator Home Loan  - LVR <=90% $300k+ (Owner Occupier)
A two year discounted rate which reverts to an ongoing life of loan discount afterwards.
3.84% 4.58% $445 $0 p.a. 90% Go to site More info
Tic:Toc Live in Loan Variable Rate
A competitive variable rate product with low fees offered by a 100% online lender.
3.68% 3.69% $0 $0 p.a. 80% Go to site More info
AMP Basic Package Variable Rate Loan - (Owner Occupier, P&I)
A basic variable loan with no monthly fees.
4.05% 4.09% $0 $0 p.a. 90% Go to site More info
ING Orange Advantage Loan - $150,000 to $500,000 (LVR <=80% Owner Occupier, P&I)
A fully featured home loan with an offset account and discounts available. $1000 cashback offer available for loans over $300k. Terms and conditions apply.
3.79% 4.11% $0 $299 p.a. 80% Go to site More info
Bank Australia Basic Home Loan - Special LVR <70% (Owner Occupier)
A special variable rate home loan with no application or ongoing fees.
3.74% 3.75% $0 $0 p.a. 70% Go to site More info
Bank Australia Basic Home Loan - Variable (Owner Occupier)
A competitive variable rate that allows borrowers to borrow a minimum of $100,000 with a $0 ongoing fee.
3.86% 3.87% $0 $0 p.a. 80% Go to site More info
Beyond Bank Low Rate Special Home Loan - LVR <70%
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. 350K NAB Rewards Points offer available. Terms and conditions apply.
4.34% 4.74% $0 $395 p.a. 95% Go to site More info
IMB Essential Home Loan - LVR <=90% (Owner Occupier)
Get access to a redraw facility and offset account without the annual fee.
4.19% 4.19% $0 $0 p.a. 90% Go to site More info
Greater Bank Ultimate Home Loan - Discounted 2 Year Fixed LVR ≤85% ($150K+ Owner Occupier)
Discount off an already competitive 2 year fixed rate for loans over $150k. NSW,QLD and ACT residents only.
3.69% 4.45% $0 $375 p.a. 85% Go to site More info 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
Auswide Bank Variable Home Loan Plus with Freedom Package - $150K+ LVR <= 90% (Special Offer, Owner Occupier)
A high maximum LVR home loan with redraw facility and additional payments.
3.69% 4.08% $0 $395 p.a. 90% Go to site More info
NAB Choice Package Variable Rate - $250k to $749,999 P&I (Owner Occupier)
Package your home loan to get discounts on your interest rate and other financial products.
4.39% 4.78% $0 $395 p.a. 95% Go to site 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% 4.99% $0 $395 p.a. 95% Enquire now More info
ANZ Breakfree Home Loan Package - $250,000 to $499,999 (LVR <=80% Owner Occupier, P&I)
A discounted variable loan package for under $500 000 home loans.
4.40% 4.80% $0 $395 p.a. 80% 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 cashback available for refinancers. Conditions apply.
3.99% 4.98% $0 $395 p.a. 95% Enquire now More info
Virgin Reward Me Variable Home Loan - LVR <= 80% ($750k+ Owner Occupier, P&I)
Earn Velocity points on a competitive variable rate home loan with flexible features.
3.79% 3.92% $0 $10 monthly ($120 p.a.) 80% Enquire now More info
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