Nila Sweeney
Q. I have an investment property and an interest-only investment loan @ 90% loan to value ratio (LVR). An offset account was also created when the loan was created. Am I able to put my own money into the offset account without having any tax implications if I take it back out?
I earn around $100,000 pa and have substantial savings.
 
A. I don’t believe there’ll be any tax implications for you if you deposit funds into the 100% offset account and then later withdraw those funds for personal purposes.
 
In essence, the 100% offset account is a deposit account, not a loan. By depositing funds into the offset account you aren’t making an additional repayment to reduce your loan but rather depositing funds into a ‘savings’ account. Drawing funds from the offset account is no different to a withdrawal from any of your savings accounts. These funds are yours, they aren’t borrowed; there’s no negative gearing or other tax implications you need to consider in relation to the use of your savings.
 
By way of an example, say your loan structure is as follows:
Loan account: $200,000 @ 9.20% pa interest-only
Interest payable by you = $18,400 pa
Offset account: $25,000 @ 9.20% pa
Interest payable by you = $175,000 @
9.20% pa interest-only = $16,000 pa
This effectively reduces your monthly instalment by $200 and is the equivalent of an 8% pa interest rate on your investment loan.
 
Should you subsequently withdraw the $25,000 from your offset deposit account, then the interest on your investment loan will revert to $18,400 pa.
 
In the event that you deposited $25,000 in the offset account for a full financial tax year, then the tax deductible interest on your loan would be $16,000.

While there’s a nominal reduction in the negative gearing benefits as a result, in my view the 100% offset structure is still a better option because it improves your cash flow, and provides a much higher rate of return than you would otherwise receive on a standard short-term fixed/variable interest deposit account.

Related: Home Loan Calculator

With interest rates at their lowest for more than 50 years, there are some great rates available. The best thing to do is to compare rates from all the lenders. Let us help take the leg work out of doing this - Compare Home Loans now