WHAT ARE THE TAX DIFFERENCES BETWEEN OFFSET AND REDRAW ACCOUNTS?

Redraw

a. Additional payments into your home loan’s redraw account reduces the principle loan balance and the interest charged
b. The money can generally be redrawn, but different lenders will have different restrictions like minimum redraw amounts, time to redraw, limited vs unlimited redraws, withdrawal fees, etc
c. If you redraw money from an investment loan for non-investment purposes the interest on that amount will no longer be tax deductible which will ultimately cost you more for your investment property.

Offset

a. Additional payments into your home loan’s offset account reduces the interest bearing balance, so your interest is calculated on the net balance of your home loan and offset account
b. Sometimes more flexible than redraw and may be treated as an everyday transaction account
c. Money withdrawn from an investment loan offset account for non-investment purposes shouldn’t affect your tax deductibility on the overall interest expense, but might impact whether your property is positively or negatively geared which will impact your tax.

Contact us for a FREE no obligation consultation, education on using different features or discuss strategies to correctly structure your loan on 03 8390 5855 or email mitesh@thinkandgrowfinance.com.au

*Please note – Think & Grow Finance does not provide tax advice and the article above is general information only. Readers should always assess their situation accordingly and seek tax advice with a qualified taxation adviser.