Is an Australian Loan Offset Account Reported on FBAR & FATCA

Is an Australian Loan Offset Account Reported on FBAR & FATCA

Australian Loan Offset Account & FBAR/FATCA

What is an Australian Loan Offset Account & is it on FBAR: The mortgage offset account is a very common tool that is used in other countries in order to help reduce the amount of interest a person pays on their mortgage. While Australia is not the only country that utilizes the offset account, it is one of the most common and popular. The idea behind the Australian offset account is that by opening an offset account, it can help reduce the interest that accrues on the mortgage loan. When it comes to US persons and Australian loan offset accounts, one of the most important questions and concerns is whether or not the account is the type of account that is reportable to FinCEN on the FBAR — and to the IRS for FATCA Form 8938 purposes.

Basics of an Australian Loan Offset Account

While the inner-workings of the Australian loan offset account are not crucial for understanding FBAR reporting, let’s take a brief look of the basics:

Example: Jane has a $200,000 mortgage and she pays interest on the mortgage loan. In addition to the mortgage, Jane has a loan offset account with a $100,000 in the account. As a result, the $100,000 in the offset account acts as security for the loan — and reduces the amount of interest that accrues on the mortgage amount. In other words, the amount in the offset account reduces the amount of mortgage balance that accrues interest. Depending on the size of the mortgage, interest rate and balance of the offset account — the savings can be substantial.

Australian Loan Offset Account & FBAR & Form 8938

When a US Person has a loan offset account, it would be generally be considered a Foreign Bank and Financial Account — and reported each year on the annual FBAR (FinCEN Form 114) — presuming that the threshold requirements for reporting are met. In addition, there may be other additional reporting requirements for form 8938 disclosure as well.

Unlike the offset account, if a person has a mortgage account, that account is normally a negative until the mortgage is paid off — and while the account is reported, it is typically reported as zero (not negative).

Unreported Australian Accounts & Assets

When a Taxpayer has unreported foreign income and/or undisclosed overseas bank accounts, assets and investments and they are US person — they may be subject to fines and penalties — although the Internal Revenue Service has developed various international tax amnesty programs to reduce and even eliminate penalties in certain circumstances.

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