Offset accounts can help any home owner reduce their interest payments, but did you know that it could also bring tax savings for property investors?
With home ownership growing as Australia’s go-to investment strategy, you might be wondering how you can get a piece of the action. There is a plethora of options open to you in the world of mortgages, not to mention the wide range of features attached to many of these products. From interest-only loans and fixed rates, to redraw facilities, you’ve probably already asked your mortgage broker about the different features available.
But what you might not have touched on is how you can make your home loan work for you as a property investor – and an offset account can be a great place to start. Research from the Australian Bankers Association highlighted that mortgage holders are making use of this option more and more. In fact, the proportion of home loans with offset facilities has jumped from 20 per cent in 2008 to more than 30 per cent in 2015.
So why might you consider this feature when investing in property? Here are some of the top benefits.
Use rental income
Any home owner can benefit from an offset account. For a property investor, however, there is another chapter to the story. To get the most from the offset function on your investment loan, you can channel rental income earned from a property into the account – thus trimming down on interest on your remaining loan balance with very little effort. Combined with your regular salary, this can generate impressive savings.
Perhaps one of the biggest benefits of an offset account – and one that many investors aren’t aware of – is the tax deductions you could be eligible for. The Australian Taxation Office (ATO) provides that investors may be able to write off interest paid on a loan, granted the mortgage is only being used to support the property.
For example, the ATO lays out that you can only make a claim when using the loan in these scenarios:
- To purchase an investment, or the land on which to build an investment property
- To buy a depreciating asset for your rental home
- Make repairs and do maintenance
- Finance renovations on the rental
However, you can run the risk of muddying this purpose. For instance, you might deposit some funds into the home loan with the intention of paying down interest, but then withdraw a portion of this sum for another private reason – say, for renovating your own home or investing in a superannuation fund.
You could avoid this hassle with an offset account. With this account connected to your investment loan, you can make deposits and withdrawals without accidentally changing the loan’s purpose, and it can also help you keep clear and separate records.
It’s a good idea to have a chat with your financial adviser or mortgage broker and seek tax advice from your accountant to understand whether this feature is right for you.