# How much cash to put into my offset account?

Discussion in 'Accounting & Tax' started by Kai41314, 27th Sep, 2015.

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1. ### Kai41314Well-Known Member

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Hi Tax Experts,

I am trying to find out what is the best amount of cash to put into my IP's offset account. Please see my situation as below:
1. My gross PAYG salary's margin tax rate is 37%
2. The tax refund I got for 2015 is \$3500 (From IP's depreciation, expenses and interest paid)
3. My IP's IO loan amount is \$250K with 4.67% IR
4. We do not have a PPOR
My wife does not work but she has few hundred thousands cash in her saving account. She does not need to pay tax because the interest she earns is less than \$18,200 per year. The IR of her saving account is 3.6%.

Should I put \$250K in my offset account? I imagine this will make me pay too much tax. How to calculate the best amount of cash to put into my offset account? Is the calculation below correct?

\$3500 / 37% = \$9459
\$9459 / 4.67% = \$202K into offset account

Thank you,
Kai

Last edited: 27th Sep, 2015
2. ### BranWell-Known Member

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3. ### BranWell-Known Member

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What's the interest rate of your wife's savings account? Calculate the interest earned on 250k. Minus the tax she will pay on those earnings.

Now, consider the interest you pay on the 250k you owe. I bet that number is higher than what she earns in interest.

I'd put it all in the offset = zero interest. You are losing money unnecessarily to have a tax refund.

4. ### BranWell-Known Member

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I'm sorry but I don't understand your calculations.

Whichever leaves extra money (after tax) in your pocket is the option you should do.

At 3.6%, she will earn \$9000 interest on 250K.

At 4.67%, you will pay \$11675 interest. This then comes off your deductible income (is the IP 100% yours?). If so, my calculation is that you are out of pocket \$7355 after tax. This is less than she earns. So... seems better off without the money in your offset.

5. ### Kai41314Well-Known Member

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Lets compare two scenarios.

If I put 200K to my offset account, I do not need to pay extra tax.

\$50K * 4.67% = \$2335 interest to pay

Leave \$50K in my wife's account and it would generate \$1800 income. As a result, \$1800 - \$2335 = \$535 of losses.

If I put 250K to my offset account, I need to pay extra tax.

\$50K * 4.67% = \$2335 interest saved
\$2335 * 37% = \$863 extra tax to pay

\$863 - \$535 = \$328

That is why I thought it might be better to only put \$200K into my offset account as I might be able to save \$328.

I am not good at math so I could be wrong and there might be other things to consider. Did I miss anything?

Last edited: 27th Sep, 2015
6. ### Terry_wStructuring Lawyer and Finance Broker - all statesBusiness Member

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7. ### BranWell-Known Member

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\$328?
Good luck. Hope it all works out

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8. ### Kai41314Well-Known Member

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The IP is 100% mine. If I have a loan agreement with my wife at 6% IR and put her \$250K in my offset account, will it trigger audit? How do I explain it to ATO?

9. ### Terry_wStructuring Lawyer and Finance Broker - all statesBusiness Member

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You should seek specific tax advice. If it is her money (and not yours too) then you could borrow it and if certain conditions are met you will be able to claim a deduction on the interest.