Hi, we just got a letter form the bank telling us if we pay interest in advance on our investment loan [hmm]with a cheaper rate we can claim tax deduction for this year. Can anyone please help explain more about this issues[hmmm]
Hi,
My understanding is if you have IO loan, taken out anytime in this financial year, you can pay upto one full year’s interest at end of June, and because its for investment, you can claim the total interest as a deduction. For example, if the loan was taken out in Feb., you would normally have to pay 5 month’s interest by end of June, but you can pay extra 7 months interest at end of June, so you can claim the deduction in this year’s tax return.
I hope this helps, please also double check with your account and/or bank.HT
It may be useful if you are on a high income this year (eg capital gain) and so could use the extra dedcutions to reduce tax.
Terryw
Discover Home Loans
North Sydney
[email protected]Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Terry, HT,
Thank you for your response. I have also made appoinmwnt with our CRM.
Learning Journey
Hi there, we purchased a property, fixed interest only loan for 3 years paying interest in advance. This was on the advice of our accountant. This was purely used as a vehicle to reduce our taxable income.
This can work well, it can also work against you if your income changes for whatever reason. You may want to check this out with your accountant.
Good luck
Marisa,
Thank you. I just PM you too.
ipjourney,
Investors who pay the bank next year’s interest before 30th June, 2004 can claim the amount as a tax deduction this financial year.
The deductibility of prepaid interest, paid by an individual taxpayer in respect of a rental property for a period not exceeding 12 months is not subject to special timing rules under section 82 KZM of the ITAA 1936 according to ID2002/939.
Taxpayers who have a loan for a rental property or shares can make up to 12 months interest payments in advance and qualify for a tax deduction at the time the repayments are made. Be careful that the ATO cannot argue that it was really a repayment of capital. Make sure the arrangement with the bank is that the payment is interest. Simply putting the money into the loan account will not work as the bank will treat that as a repayment of capital. You must not make an advance payment for a period in excess of 12 months or the whole amount will only be able to be claimed in the period the interest is applicable to not when paid. Businesses do not qualify for this concession unless they elect to enter the simplified tax system. If your business is in the simplified tax system you may want to consider making 12 months lease payments in advance also.
As this arrangement is only moving tax deductions from next year into this year it could work against you if you are in a higher tax bracket next year than this year.
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