Offset vs Shares Calculator Australia

How this four-scenario model works

This calculator simulates four fundamentally different strategies for deploying a lump sum of money, all starting with the same initial cash and the same annual out-of-pocket cost — making them genuinely comparable.

Cashflow Neutrality (the key principle)

The anchor is the original annual P&I repayment on your loan, the one O1 keeps paying. All four paths cost the same per year out of pocket. O2 and O3 invest what they save on repayments; after its interest-only years O3 sells shares to cover the higher repayment. S1 pays the same as O1 in mortgage repayments. Without this constraint, you'd be comparing apples to oranges.

The four scenarios

• Offset family · keep it in the offset.
• O1 — All in Offset: Lump sum into offset. Original full P&I repayment maintained. Since less interest is charged, every cent of interest saved goes directly to principal — a compounding snowball that can shave 8–12 years off a 25-year term. Maximum guaranteed, risk-free outcome. Wealth = offset cash + extra loan equity paid down vs starting position.
• O2 — Offset + invest the difference: Lump sum into offset. P&I repayments are recalculated on the effective balance (loan minus offset), so the required repayment is lower than the original. The difference to the original repayment goes into shares each year. Loan reduces, the offset works, and a share portfolio builds alongside. Wealth = offset cash + share portfolio after CGT + loan repaid.
• O3 — Interest-only + invest (a what-if, never ranked): Lump sum into offset. For the interest-only years it pays interest only on the effective balance and keeps the whole loan, investing the difference to the original repayment in shares. It does better only if shares out-earn the loan rate after tax. After those years the loan reverts to P&I over the shorter remaining term, so repayments rise above the original; O3 sells shares to cover the rise (then draws on the offset if the shares run out), so it pays the same out of pocket as every other path. Wealth = offset cash left + share portfolio after CGT + loan repaid.
• Shares family · put it in shares.
• S1 — All in Shares: Lump sum goes directly into shares. Standard P&I repayment on the unchanged loan. All dividends (after franking credit adjustment) reinvested. Maximum market exposure, highest expected ceiling, most volatile. Wealth = share portfolio after CGT and brokerage + loan repaid.

The hurdle rate formula (and why it's a heuristic, not a hard rule)

The offset earns your mortgage rate guaranteed and tax-free. The simple break-even formula is:
Hurdle = Mortgage Rate ÷ (1 − Marginal Tax Rate)
At 6% mortgage and 37% tax: 6% ÷ 0.63 ≈ 9.5% gross p.a.
However, this formula overstates the required share return for a PPOR. It assumes all investment returns are taxed in full every year — like a savings account. Shares aren't: capital gains are deferred until you sell and then receive a 50% CGT discount if held more than 12 months (the 50% discount applies to the pre-1 July 2027 share of the gain; the post-1 July 2027 share is CPI-indexed and taxed at a 30% minimum under Acts No. 49 and 50 of 2026 — this calculator now models both, per FIFO lot, per the “How tax is modelled” note under the results), and franking credits from Australian companies partially offset dividend tax. These two factors significantly reduce the effective tax drag, making the real break-even return well below the formula's result. For an IP (where mortgage interest is deductible), the formula is accurate in reverse — the offset's real after-tax benefit is rate × (1 − tax), a much lower bar for shares. The simulation uses year-by-year FIFO CGT and franking credit modelling — trust its output over the hurdle heuristic.

Monte Carlo methodology

• Share returns: lognormal distribution. The log-mean is set so the median compound return equals exactly your CAGR input. This avoids overstating expected outcomes (arithmetic mean bias).
• Interest rates: Ornstein-Uhlenbeck (mean-reverting) process. Rate shocks decay back toward your base rate. Clamped to 0.5%–15% to avoid nonsensical paths.
• 300 simulations. “Ends highest” % = the share of paths in which each scenario has the highest terminal wealth.

Tax treatment

• Dividends: grossed up for franking credits. If credits exceed your tax liability (e.g., super fund, low income), the excess is treated as a cash refund.
• CGT: FIFO lot selection. Each lot is split at its own estimated 1 July 2027 value: 50% discount for the gain up to that value, before 1 July 2027 (individual; 33.3% for super, unconditionally), CPI-indexed cost base at a 30% minimum tax for the share accruing from it (Acts No. 49 and 50 of 2026, enacted) — see “How tax is modelled” under the results.
• Offset: interest saving is tax-free — no income recognised. This is the core advantage.

Worked example

These are the calculator's own shipped defaults, so loading this page and pressing Calculate reproduces the figures below for a run started in the same month (the 1 July 2027 split moves them slightly with the start month). Wealth is rounded to the nearest $1,000.

On these inputs, All in Shares (S1) ends about $28,000 higher than the next highest among O1, O2 and S1 (Offset + invest (O2)), and the share path overtakes the offset path in year 1. That margin is roughly 9% of the higher figure over a decade — close enough that the inputs it turns on matter more than the order itself.

What moves it. Raise the mortgage rate and the offset's guaranteed, tax-free return climbs while the share return does not; at a high enough rate B and D overtake C. Drop the share growth rate and the same happens. Switch Purpose to an investment property and the interest becomes deductible, which cuts the offset's after-tax benefit to rate × (1 − tax) and moves the comparison toward shares. Switch Investor type to a super fund and the 15% dividend rate plus the 33.3% CGT discount move it further the same way. The Sensitivity tab sweeps these for you rather than asking you to guess.

What the figures do not include: home equity. All four borrowers own the same property, so it cancels — see the framing note above.

Limitations & assumptions

• Capital gains tax rate: By default the gain when the shares are sold is added to your other taxable income in the sale year (left blank, the bottom of the bracket of your shares tax rate: 37% gives $135,001) and taxed through the resident rates for that income year, plus 2% Medicare and the 30% minimum-tax top-up on the part from 1 July 2027. Every parcel sold is netted together. In both modes purchase brokerage is in each parcel’s cost base and sale brokerage comes off the gain. The brackets are held at their legislated values for every future year, so real bracket creep is not modelled. Offsets such as the low income tax offset (LITO) and the seniors and pensioners tax offset (SAPTO) are ignored, and all assets are sold in the final year as one lump; sales along the way to pay the fund fee keep the shares tax rate, and their capital losses are netted in their income year, with any left over carried forward to later sales, the final sale included (a loss on the final sale is not set back against gains taxed on fee sales earlier that year). In Flat rate mode the shares tax rate (Medicare included) is applied to the netted gain instead; the brokerage and the 12-month indexation rule apply in both modes. Super keeps its 15% rate. See the worked example.
• The 1 July 2027 CGT reform is modelled. Each FIFO share parcel is split at its own estimated 1 July 2027 value: the 50% discount for the gain up to that value, CPI-indexed cost base at a 30% minimum tax for the gain after it (Acts No. 49 and 50 of 2026). CPI uses a constant assumed rate (2.5% p.a. by default), not the ATO’s published quarterly figures, and the 1 July 2027 value is an estimate, not a market valuation — see “How tax is modelled” under the results for both. Complying super funds keep the flat 33.3% discount unconditionally, unaffected by the reform.
• Home equity is excluded from every scenario, deliberately. All four borrowers own the same property, so it cancels in any comparison; what is measured is only the marginal wealth from how the lump sum is deployed.
• One rate, one tax rate, for the whole horizon unless you use the Monte Carlo tab. The deterministic run holds your mortgage rate and marginal rate constant — real rates move and real incomes cross brackets.
• Dividend yield and growth are separate, constant inputs. Real dividends are cut in downturns, precisely when the growth assumption is also failing; the model does not correlate them.
• Franking is a single blended percentage. A real portfolio holds fully franked, partly franked and unfranked shares in changing proportions.
• Brokerage is charged as a percentage of each trade and no minimum-fee floor is applied, so very small parcels are modelled slightly cheaply.
• Offset interest is assumed to be fully effective — every dollar in the account offsets a dollar of loan balance. Partial offsets, sub-account rules and lender-specific caps are not modelled.
• No transaction, redraw or account fees, and no lender's annual package fee.
• The Monte Carlo tab runs 300 paths. That is enough to show the shape of the distribution and not enough to read a single percentile to the dollar.
• All figures are in AUD and nominal — not adjusted for inflation. This is general information, not personal financial advice.

Glossary

• Offset account: a transaction account linked to your loan. Its balance is subtracted from the loan before interest is calculated, so it earns your mortgage rate — with no tax, because you never receive income.
• Effective balance: loan balance minus offset balance. It is the figure interest is actually charged on.
• Cashflow neutrality: the rule that makes the four scenarios comparable — each costs the same out of pocket per year, so what differs is strategy, not commitment.
• Hurdle rate: the gross share return needed to match the offset. The heuristic is mortgage rate ÷ (1 − marginal rate); it overstates the bar for a PPOR, for the reasons above.
• P&I: principal and interest — a repayment that reduces the balance, as opposed to interest-only, which does not.
• Franking credit: tax already paid by an Australian company on profits paid out as a dividend. You are taxed on the grossed-up amount and credited with the tax paid; if the credit exceeds your liability the excess is refunded.
• FIFO: first in, first out — the order share parcels are treated as sold in, which decides each parcel's cost base and holding period for CGT.
• CGT discount: the reduction applied to a capital gain on an asset held over 12 months — 50% for individuals before 1 July 2027, 33.3% for complying super funds.
• MER: management expense ratio — the annual percentage an ETF or fund charges, deducted from returns.
• PPOR: principal place of residence, i.e. the home you live in. Its mortgage interest is not tax deductible, which is what makes the offset so strong against it.

Frequently asked questions about offset accounts vs shares

• Should I put money in a mortgage offset account or invest in shares in Australia?

  The offset earns your mortgage rate tax-free and risk-free. A common heuristic is: hurdle = mortgage rate divided by (1 minus marginal tax rate). But for a PPOR this formula overstates the required share return because it treats all investment gains as taxed annually — shares are not. Capital gains are deferred until sale and receive a 50% CGT discount after 12 months (the 50% discount applies to the pre-1 July 2027 share of the gain; the post-1 July 2027 share is CPI-indexed and taxed at a 30% minimum under Acts No. 49 and 50 of 2026 — this calculator now models both, per FIFO lot, per the “How tax is modelled” note under the results), and franking credits offset dividend tax. The effective break-even return is well below the formula suggests. This calculator runs a year-by-year FIFO CGT simulation so you can see the real after-tax comparison for your own numbers.

• What is cashflow neutrality in an offset vs shares comparison?

  Cashflow neutrality means every scenario costs the same amount per year out of pocket, making them genuinely comparable. The anchor is the original full P&I repayment, which O1 (All in Offset) keeps paying. O3 (Interest-only + invest) invests its repayment saving into shares during the interest-only years, and sells shares to cover the higher repayments after them. Without this constraint you would be comparing different levels of financial commitment, not different strategies.

• What is the hurdle rate for offset vs shares in Australia?

  The hurdle rate heuristic is: Mortgage Rate divided by (1 minus Marginal Tax Rate). At 6% and 37% tax that gives 9.5%. However, this formula treats shares like a savings account taxed annually in full — it ignores that capital gains on shares are deferred until sale and receive a 50% CGT discount after 12 months (the 50% discount applies to the pre-1 July 2027 share of the gain; the post-1 July 2027 share is CPI-indexed and taxed at a 30% minimum under Acts No. 49 and 50 of 2026 — this calculator now models both, per FIFO lot, per the “How tax is modelled” note under the results), and that franking credits offset dividend tax. These factors significantly reduce the effective tax drag, making the real break-even share return well below the formula's output. The formula is accurate for an investment property (where the offset's benefit is rate times (1 minus tax)), but not for a PPOR.

• How do franking credits affect the offset vs shares comparison?

  Franking credits attach to fully franked dividends from Australian companies. Individuals can claim them as a tax offset or refund. Super funds at 15% tax rate receive a large portion back as cash. This materially improves the after-tax return of Australian shares versus the theoretical hurdle rate.

• What is the All in Offset scenario in the offset calculator?

  All in Offset puts a lump sum into the offset account and maintains the original full P&I repayment. Since less interest is charged each month, the entire interest saving goes directly to principal — a compounding snowball that can reduce a 25-year loan by 8 to 12 years with no extra cash outlay. It is the maximum guaranteed risk-free outcome.

• Can I use a super fund tax rate in the offset vs shares calculator?

  Yes. Select Super Fund (15%) as your investor type. The calculator applies a 15% dividend tax rate and 33.3% CGT discount for assets held over 12 months, significantly improving the after-tax share return compared to a 37% or 45% individual rate. Complying super funds are unaffected by the 1 July 2027 individual CGT reform, so the 33.3% discount is correct for super on both sides of that date.

• Should I put money in my offset account or invest in shares in Australia (2026)?

  The answer depends on your mortgage rate, your marginal tax rate, your holding period and the return you assume for shares. An offset account saves mortgage interest, which is not taxed, while share returns are taxed on dividends and on the gain when sold, and shares carry volatility that the offset does not. Use this simulator to model your own numbers and see the year-by-year comparison, then use the Sensitivity tab to see how the result changes as the share return and the mortgage rate move.

• How does the mortgage rate affect the offset vs shares comparison?

  The higher the mortgage rate, the stronger the offset account's guaranteed return. At 5% the offset returns 5% tax-free and risk-free — shares need to significantly outperform to compensate for risk. At 7% the offset's guaranteed return becomes hard for shares to match reliably. At low rates (2–3%), shares are clearly superior for most investors with a long horizon and moderate tax rate.

• What is the Monte Carlo simulation in this offset vs shares calculator?

  The Monte Carlo tab runs 300 random market paths. Annual share returns vary randomly each year (lognormal, with the median compound return set to your expected return and the share volatility you choose) and interest rates follow a mean-reverting process. The tab shows how each scenario performs across good, median and bad paths, and the share of paths in which each scenario ends with the highest wealth. It is a stress test of the inputs, not a forecast.

• Does paying down the mortgage or using an offset account produce the same result?

  No — there is an important difference. Extra repayments permanently reduce your loan balance and cannot be accessed again without refinancing. Money in an offset account reduces interest exactly the same way, but remains accessible as a liquid emergency fund or investment opportunity fund. For most borrowers, offset is superior to extra repayments because you get the same interest saving with full access to your cash.

• How does negative gearing affect the offset vs shares comparison for investment properties?

  For an investment property, the offset account's effective after-tax benefit is reduced because mortgage interest is tax-deductible — so the net interest cost is rate × (1 − tax rate). A 6.3% mortgage at 37% tax effectively costs 3.97% after deductions. This makes it much easier for shares to come out ahead of the offset on an investment property than on a PPOR, where no interest deduction applies.

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