Redraw vs. Offset Accounts: Which Saves You More on Taxes?

Almost one‑third of people made mistakes claiming rental property interest deductions

Redraw vs offset accounts. Do you know the tax effect differences?

If you borrow to purchase an investment property, choosing between redraw and offset can have a significant effect on your tax. Both can save you money on interest repayments and reduce your home loan term but any repayment amounts that you are ahead of with an offset account, can be used for other purposes and not affect the amount of interest claimable for rental interest deductions.

Rental Properties - Offset accounts vs redraw accounts

What else you can’t claim:

■ your full loan repayment amount (only the interest is deductible)
■ the full interest amount charged on the loan for – any periods you used the property for private purposes
– any amount used for a non-deductible or private purpose other than for the rental property – for example, to go on holidays or buy a boat (even if you withdrew an amount because you were ahead on your repayments)
– OR money you redrew to buy a new home to live in (even if you use your rental property as security).
■ the purchase of vacant land to build a rental property – you may no longer claim the interest on your mortgage until the property contains a residential premise that both
– can be lawfully occupied
– is available for rent or is rented.

To be certain about what suits you best for tax purposes, contact Sophie McDonald, Manager Taxation & Advisory Services for personalised advice.

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