Finance News

Offset Account? Yes, it’s for investors too.

Offset Account? Yes, it’s for investors too. Author: Con Koulouris For many Australians, owning a home is the primary goal. Some Australians are also property investors. They purchase property and rent it out, benefiting from the property growth in Australia. When borrowing to invest, some Australians will structure their loan so it is an Interest Only Loan. They will not make payments towards the loan amount but they will meet their interest payments. For those who do pay down their loan amount, additional payments will sit in redraw. These additional payments will reduce the interest payable and are available to redraw on and use as required (subject to the structure of your loan). When making these additional payments, it is important to consider if these funds will be required in the future and for what purpose. If the funds will not be used for the investment purposes, then the loan interest will not be fully tax-deductible. Let’s look at an example: Bill has an investment property with an Interest Only Loan of $400,000. Bill inherits $200,000 and places it into the loan, reducing his debt to $200,000. A few months later he redraws $100,000 for the purpose of renovating his owner-occupied home. The investment is now $300,000, but only the interest on $200,000 is tax deductible. But what if Bill had an offset account? An offset account is a bank account that has a separate account number to your Investment Loan. Every dollar you deposit in your offset account means you take a dollar off what the bank calculates as interest on your Investment Loan. Let’s assume Bill has an offset account. He has the Investment Loan of $400,000 with a Linked Offset Account. When he receives the inheritance, he deposits it into the offset account. The Investment Loan would remain at $400,000, although he would only be paying interest on $200,000. When he draws $100,000 from the offset account for the renovations on his owner-occupied home, then the Investment Loan is still $400,000 but the interest is calculated on $300,000. As the actual Loan Account has not been paid down, the tax deduction will be based on a $300,000 loan. From Bill’s example, it is easy to see the benefit of an offset account for an investor. All investors are looking to maximise their tax deductions and an Offset Account helps you maintain the debt levels you can claim a tax deduction on. For more information on how an offset account can help you with your Investment Loan, please call our office.         General Advice Disclosure: This document contains information that is general in nature. It does not take into account the objectives, financial situation or needs of any particular person. You need to consider your financial situation and needs before making any decisions based on this information. If you decide to purchase or vary a financial product, your financial adviser, AMP Financial Planning and other companies within the AMP Group may receive fees and other benefits. The fees will be a dollar amount and/or a percentage of either the premium you pay or the value of your investment. Please contact us if you want more information.   Case Study Disclaimer: The Examples is illustrative only and is not an estimate of the investment returns you will receive or fees and costs you will incur.

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