Offset account - expenses

Do you take your mortgage repayments & expenses from your offset account or from a separate account? Is an offset account purely for savings?

Just curious as to how everyone else structures their payments

 

My repayments and living expenses come from my offset. That's where my wages and rental income is deposited as well.

 

+1

 

If you've got a PPOR debt - link your offset up to it. Have all income/repayments come in/out of it. If you've got a credit card with points - use that for everyday expenses and clear it each month with the money sitting in the offset.

Cheers

Jamie

 

I have 9 offset accounts connected to my PPOR loan. bankwest
I personally love it as its all divided up.
I used to have the kids savings accounts at anz but now have them here which currently is around 15k. It all helps to save non dedudctible debt.
I also have 5 cards that are labelled so can easily access the money if needed.
I dont have any credit cards anymore, as it just hasnt worked for us over the years. These offset accounts have helped us get way ahead since we have had them oct last year.
1.Rent and bills
2.christmas
3.school fees
4. after school activities
5.renovations
6. child 1 savings
7.child 2 savings
8.child 3 savings
9. My savings

 

From a tax point of view there is no reason to segregate different incomes. If all incomes, including rents go into the non deductible offset you will be saving money and maximising deductions.

 

Do all banks allow you to have multiple offsets accounts? Is there an additional fee?

 

No and it depends.

 

I remember setting up an extra one with St George, I think it was $5/mth.

 

I have approximately 10 offset sub-accounts with suncorp. No fees.

I have setup one of these for dividend income from my various shareholdings - allows that sort of income to be easily identified at tax time.

 

I knew there was a reason I left St George

 

What about nab? Guess I'll get onto it and check with them.

 

Not sure about NAB, but I believe CBA allow unlimited offsets to be set up. If you have the wealth package with them they're also free.

 

The NAB don't have multiple offset accounts. The HomePlus product gives you a free offset account for each loan split if you want it. They charge $10 / split even if you don't take the offset account.

When thinking of how to make money for, don't think of it as an offset account. Instead think of it as a regular transaction account with a particular feature that offsets the loan. That's really all it is.

Your savings from income goes into the transaction account. Income is your salary, share dividends, rental income, and any other money you earn. Any non-deductible expenses can come out of it including your living expenses and your loan repayments.

You can also pay deductible expenses from your transaction account (which is what most people do to keep it simple), but to get the absolute most tax deductions, pay this from an equity account.

The fact that this transaction account then offsets your loan, simply means that any money in there reduces the interest you pay on that loan.


The equity account could either be an equity loan that has transaction features, or another transaction account that's used exclusively for moving money around from an equity loan. This keeps money from equity separate from income money in the regular transaction (offset) account.

 

I assume ANZ don't charge you for each offset account?
They charge me for my second one, *******s.

 

Hi Terry,

Does the ATO allow people to use rental money to offsett non-deductable debt whilst maximising the rental's interest deduction as well ?

Say I have a PPOR loan with offset and an IP loan. Rent from IP goes to PPOR offset account to save interest on PPOR (not the IP's) and at the end of the month the total max monthly interest on the IP gets deducted from the aforementioned PPOR offset account ?

Does the ATO allow this ?

Thanks.

 

Yes, there are no issues with that. rent is just income and up to you how you spend it. Offset accounts are separate to loans so no tax issues such as mixing or contamination.

 

oh that's great then. What about when one pulls out equity for investment purpose (like funding the purchase of an IP) and park it in a brand new offset account waiting to be used on settlement day.

Once ALL this equity fund gets used up for investment purpose only, and interest gets deducted from the equity loan can I then gradually inject funds like salary and rent into this offset account to save on interest ? Will this contaminate the account and remove its tax deduct ability benefit ?

 

Firstly, I would not advise pulling equity out = borrowing money - and parking it in an offset account.

However if you do then don't place any funds in the offset until it is completely used. Once this occurs it will just be a loan. and there are no direct consequences to placing any money in the offset no matter what its source. It won't contaminate.

But best to pay any cash into an offset on the main residence first.

 

Slightly off-topic, but hopefully useful for anyone wanting the benefits of an offset with faster/easier investment loan availability: a LOC home loan package.

For my latest PPOR upgrade my broker set one up for me and it's great. You basically have 2 or more individual loan accounts (each with their own bsb/account number) all under 1 umbrella with an overall limit. No matter how much you pay it down, you can always increase an individual loan's limit so long as you stay under the overall limit.

Quick scenario with an $800k loan, and wanting to make a $100k investment after saving up $100k cash.

With an offset account: if you use $100k offset cash to buy the investment, you will be charged say $5k extra interest per year on your home loan. You would have to carefully calculate and apportion out the home loan interest that should be tax-deductible, which gets very messy (if this is even allowed?). Alternatively you could apply for a loan variation and split the loan into 2 products $700k + $100k but this will take time.

With LOC package: you have 'paid down' the $800k loan to $700k, but the overall limit is still $800k. In a matter of seconds, you increase the limit on the as-yet-unused second loan from $0k to $100k, and the funds are immediately available. From the outset, the interest on the second loan is isolated from the interest on the main home loan.

(hope my understanding of this is correct, happy to be corrected by the brighter minds here)