Offset Account vs Investing in Australia: Which Wins?

Author: Tepuy Solutions | Date: November 2026
Category: Strategy, Mortgages, Investing

You have spare cash and a home loan. Should it go into your offset account or into investments? It comes down to three numbers: your loan rate, your tax rate, and the return you can reasonably expect after tax. This guide gives you the break-even maths and shows where the simple rule of thumb goes wrong.

How an offset account pays you

An offset account pays no interest. Its balance is subtracted from your loan balance before interest is charged, so what you get is interest you do not pay rather than income paid to you.

That is why the usual comparison, and the Offset vs Shares simulator for a home you live in, treats the offset as a certain, untaxed return equal to your loan rate. $100,000 sitting in a full offset against a loan charged at a hypothetical 6% saves $6,000 a year in interest. If your account pays interest instead, that is a different product, and the interest is income.

The break-even return

To beat the offset, an investment has to earn more than the offset saves, after tax. The simplest version:

Break-even pre-tax return = loan rate ÷ (1 − your marginal tax rate)

This assumes the whole investment return is taxed every year, the way interest is. It is the toughest test an investment can face.

For 2026-27, the resident tax rates in Schedule 7 of the Income Tax Rates Act 1986 include 30% on taxable income over $45,000 up to $135,000, 37% over $135,000 up to $190,000, and 45% over $190,000. The Medicare levy is 2% (Medicare Levy Act 1986, s 6(1)). Adding the levy gives marginal rates of 32%, 39% and 47%.

Break-even pre-tax returns, at hypothetical loan rates:

These are our calculations from the rates above. The loan rates are examples, not forecasts.

Why that table overstates the hurdle for shares

Shares are not taxed like interest. Part of a share return is usually growth in the share price, and that growth is not taxed until you sell, when capital gains tax applies. Franked dividends carry a credit for tax the company has already paid. So the real hurdle for shares sits below the table above, and where it sits depends on how much of the return is growth, how long you hold, and whether you ever sell.

The flip side: shares can fall. The offset's saving is certain; a share portfolio's return is not. Comparing a certain 6% with an expected 9% is not comparing like with like. The honest comparison also asks how bad the bad years can be, and whether you would hold through them.

Capital gains tax from 1 July 2027

The CGT rules for individuals change on 1 July 2027, and the change is law: the Treasury Laws Amendment (Tax Reform No. 1) Act 2026 (Act No. 49 of 2026) and the Income Tax Rates Amendment (Tax Reform No. 1) Act 2026 (Act No. 50 of 2026). In one sentence:

Enacted law (Acts No. 49 and 50 of 2026, including the Treasury Laws Amendment (Tax Reform No. 1) Act 2026): for individuals and trusts the 50% CGT discount is kept on the part of a gain that accrued before 1 July 2027, whenever the asset is sold, and gains accruing from 1 July 2027 use CPI cost-base indexation, with a 30% minimum tax for resident individuals that does not apply in a year they receive the Age Pension or certain other income-support payments. New residential dwellings and affordable housing keep a discount (50%, or up to 60% for affordable housing) instead of indexation and the minimum tax, with a choice of indexation where the Act allows, and a pre-CGT asset is treated as sold and reacquired on 1 July 2027 so that only the gain from that date is taxed; the Act's other conditions apply.

For shares, in the Income Tax Assessment Act 1997 as amended:

• The 50% discount stays for the part of a gain that accrued before 1 July 2027. Shares you hold on 30 June 2027 and sell later are treated as sold just before 1 July 2027 at their market value and bought back at that value (s 112-155(2)-(3)). The gain up to then is deferred until you sell, and keeps the 50% discount where it qualifies (s 112-160(3), s 115-100(aa)).
• The part from 1 July 2027 is worked out on an indexed cost base. For a CGT event on or after 1 July 2027, the cost base includes indexation (s 110-36(1A)), and for shares held on 30 June 2027 indexation runs only from 1 July 2027.
• That part is taxed at 30% at least. An Australian resident individual pays extra tax that tops the tax on those gains up to 30% (Division 119, s 119-10), unless they receive one of the government payments listed in s 119-15 at any time in the income year.

For a long-held share portfolio, this changes how much of the growth you keep, which is another reason a single hurdle rate is only a starting point. Our explainer on CGT after the 2026 Budget goes through the rules in more detail.

A worked example (hypothetical numbers)

Take $100,000 of spare cash, a 6% loan rate and a 32% marginal rate:

• Offset: saves 6% × $100,000 = $6,000 a year, with certainty.
• Invest: to keep $6,000 after tax at 32%, the investment must earn $6,000 ÷ 0.68 = $8,824 before tax a year, which is 8.82% if it is all taxed each year.
• If most of the return is instead growth taxed only when you sell, the pre-tax figure needed is lower, but you take on market risk and a CGT bill later.

The offset wins on certainty. Shares may win on expected value. Which is "better" depends on how much you value the certainty.

Where the simple answer breaks down

1. Same cash on both sides. The fair test puts the same amount of cash into each option. If you invest money that would otherwise have reduced your loan, your loan balance stays higher and you pay more interest. The Offset vs Shares simulator builds its scenarios so the cash going in is the same (see below).
2. Access. Offset money can usually be taken out at any time; shares can be sold, but possibly at a loss.
3. Rate changes. If your loan rate falls, the offset's saving falls with it. If the rate rises, the offset saves more.
4. Behaviour. Many people find it easier to keep a buffer in an offset than to hold shares through a fall.
5. Investment loans. This guide is about a loan on a home you live in. If the loan is for an investment property, the tax treatment of its interest is different and so is the comparison. The simulator has a setting for an investment property loan.

Run your own numbers

The Offset vs Shares calculator is a simulator that compares the offset, paying down the loan and investing, year by year over a horizon you choose (up to 40 years). It taxes the shares' dividends with franking credits (a refund where the credits exceed the tax) and the gain on each parcel of shares when it is sold, under the 1 July 2027 rules above, and it can run a Monte Carlo simulation of the returns. It applies the 30% minimum tax in every case, so for someone who receives the Age Pension or a listed income-support payment in the year of sale it overstates the tax. The mortgage calculator shows what an offset balance or extra repayments do to your own loan. Put in your own loan rate, tax rate and expected return, then try a weaker return to see how much the answer depends on it.

Frequently asked questions

• Is an offset account better than investing? It depends on your loan rate, your marginal tax rate and what your investment returns after tax. Money in an offset saves interest at your loan rate, with certainty. An investment has to beat that after tax, and after allowing for the risk that it falls.
• What return do I need to beat a 6% mortgage rate? At a 32% marginal rate (30% plus the 2% Medicare levy), about 8.82% a year before tax, if the whole return were taxed every year. Shares defer much of their tax until you sell, so the real hurdle for them is lower, but their return is not guaranteed.
• Should I pay extra off my mortgage or invest? Extra repayments and money in an offset both save interest at your loan rate, so the same break-even logic applies. The difference is access: offset money can be taken out again, while getting back an extra repayment depends on your loan's redraw terms. The Offset vs Shares simulator compares paying down the loan, the offset and investing side by side.
• Does the 1 July 2027 CGT change affect this choice? It can, if you invest. Under Act No. 49 of 2026, the 50% discount applies to the part of a gain that accrued before 1 July 2027. The part from that date is worked out on a cost base indexed for inflation, and an Australian resident individual pays at least 30% tax on it, with exceptions for people who receive certain government payments in the year. The Offset vs Shares simulator models both parts for each parcel of shares.

Sources

Disclaimer

General information only, not financial advice. The examples use hypothetical rates and are not predictions. Confirm the tax treatment with the ATO or a registered tax agent.