Hi
Just wondered if anyone has any thoughts on this scenario:I am thinking of prepaying next years interest for my IP (~25k interest), but will need to take out a LOC to pay about half of this, plus will have some establishment costs to fix the loan and establish LOC ~ $450. I would be able to get a 0.2% discount on my outstanding loan (~390k). I would use the tax refund to reduce the outstanding balance on the LOC back down to minimum. I am not sure if this is worthwhile to obtain the tax deduction this year, i.e. it seems to be only deferring things from next year. Plus would the tax department allow this if I had to borrow money to make the prepayment, i.e. I don't have the lump sum just sitting around?
Thanks
The ATO has released a ruling basically saying borrowing to pay interest is deductible if the original interest is deductible.
It could be a good idea if you still have a non deductible loan as you can free up cash flow to pay down that faster. But you really are only bring forward the deduction – so whether it is good to do will depend on this fin years income and next. If you have a high income this year and expect a low one next then you may get more tax savings by bring it forward.
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
Thanks a lot for the information, Terry.
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