sorry I didn’t hear that ! say again.

Yes I live in Melbourne, but my investment properties are in Brisbane. I really want one who is property tax smart and savvy and cunning and creative etc… Don’t we all ! Probably one that is doing the investment property thing themselves.

[8D]

Thanks for your help Wayne. I may take you up on that if I get the property, or even if i dont.

Now I’m a total newbie at this property stuff so please forgive my naivete in this arena, but here’s my twist.

erm. I just settled on a new property. interest will be about $13,000. Rent received will be about $1000. So given that I have no tax claims to make this year as this is my first property, surely it makes sense to prepay the $13k and claim it on tax for this financial year.

Otherwise this financial year will go unclaimed against and would then have to do a 15-15 tax variation, which would spread the tax rebates over the course of the year.

Now surely, If I can get a refund in less than 4 weeks on the $13K prepaid interest on borrowed money or redraw on my home mortgage where there are NO Tax deductions available, it makes some sense. I get a $13K reduction on my taxable income and get about $6K back from the ATO. Note this $6K is now put back against my home mortgage. Thus I still owe another $7K from the $13K I redrew to pay the interest.

Now because I paid the tax up front and got my refund early, I’m now in positive cash flow to the tune of about $1000 per month for the rest of the year. Thus each month I pump in $1K into my home mortgage to pay off the remaining $7K I owed on the $13K redraw. So in 7 months time I have paid off the full redraw and then have another 5 months of positive cash flow to reduce my home mortgage by another $5K in addition to my normal monthly repayments. Now I assume the tax rebate easily covers the extra interest I would have to pay on the redraw of $13K. I mean $6K is repaid within say 4 weeks ? with the tax rebate. The remaining $7K is repaid within 7 months.

So the total interest on the $13K for 1 month, plus the interest on the remaining $7K paid off over 7 months, would surely be miniscule compared to the tax rebate. Lets see $13K @ 6.17% pa, calculated daily for 4 weeks or 31 days is about $69 in accrued interest over that period. Now after 4 weeks I pay off $6K with the tax rebate.

Now for the next 7 months I have to pay the interest on the remaining $7K of the redraw. Now I wont go into it too deep, but oh what the heck, yes I will; Approximates only though ! I’ve rounded them up to the nearest dollar.

Month 1 $7K @ 6.17% over 31 days or 1 month = approx. interest of $37
Month 2 $6K @ 6.17% over 31 days or 1 month = approx. interest of $32
Month 3 $5K @ 6.17% over 31 days or 1 month = approx. interest of $26
Month 4 $4K @ 6.17% over 31 days or 1 month = approx. interest of $22
Month 5 $3K @ 6.17% over 31 days or 1 month = approx. interest of $16
Month 6 $2K @ 6.17% over 31 days or 1 month = approx. interest of $11
Month 7 $1K @ 6.17% over 31 days or 1 month = approx. interest of $6

And don’t forget that interest paid will also surely be tax deductible at the end of the year ! Thus the total interest from the redraw being approx. $219 will be tax deductible in the next financial year.

Now come end of next financial year, I pay the delayed income tax on the remaining 11 months rent I received for the financial year against my salary income for that year and less all other expenses associated with the property that could not be claimed in advance, such as depreciation on building and fixtures & fittings etc.. rates, agent fees Corp fees etc…

Surely I just keep doing this each year. The bottom line is that I get jump start to tax claims that will then have a compounding effect each year particularly on my home mortgage repayment schedule, where no tax claims can be made. I thought this was the whole point of it ? Thus for a pre tax interest bill of $219, I gain a $6K tax deduction 11 months early meaning I get an 11 month early $6K injection against my home mortgage. Sure I will have to pay tax on the 11 months rent by next financial year, but then I will have other deductions for that year including payment of interest in advance again ! This savings effect will now compound throughout the remainder of my home mortgage. As I understand , it would be like paying interest on a lesser mount for the remainder of my own home mortgage loan.

Now if I settle on a second property also this financial year, which I am hoping to do with the nod and wink from the bank, then I can claim interest on the two properties up front. This other property returns a bit less, costs less , but over all the two properties interest bill will enable about a $10K tax rebate in total. Thus this $10K will be put against my home mortgage with a $10K compounding interest reduction effect for the life of the loan and the process would be repeated each year.

Admittedly I may have to pay some tax back at the end of the next financial year from the rent received over that period, but against another year interest paid in advance, that tax would partially be offset, depending on the rent cash flow and my income for that period against all other deductible expenses cash and non cash, over the same period.

Please guide me on this as this is just my slant based on what I have read thus far. If I’m an idiot please say so, in order that I can learn fast before the end of this financial year and make the right decision on this.

By the way, can I pay rates and real-estate agent fees and body Corp fees up front ? and claim on tax this year ?

Thanks in Advance ! ( pardon the pun ) Please refund me with the correct advice, well before the end of this financial year ! so I can get a head start in property investment.

newbie. [8D]
27 May 2003