Early Interest Payment

From: Ric1 .

I was wondering, as the current financial year draws to a close, whether it is possible to pay some of next financial year's IP interest (IO loan) early, before 30 June, so as to reduce one's taxable income this year. I've just been hit with a provisional tax bill for this year which I would like to recoup if possible.

If any one has done this, can they share with us how it was done?

Thanks in advance

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Reply: 1
From: The Wife

Hey Ric,

This can be done, however I'm not an accountant and cant give you the specs, I would go to my savvy accountant and say "do it please"!
~Life is a daring adventure, or nothing at all~
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Reply: 2
From: Terry Avery

This strategy of paying a years interest in advance, actually it was up to
13 months in advance, was popular some years back but the ATO decided to cut
out the fun and disallow it. I think you can now only claim that portion
which is attributable to the tax year you are claiming. Prepay in May and
you can claim only two months. I could be wrong but a few years back at this
time of the year the papers were flooded with ads offering loans with 13
months prepaid interest.

This is the quote from the CCH Australian Master Tax Guide 2000:

"The fact that interest has been prepaid may operate to preclude a deduction
in certain circumstances, particularly where the taxpayer's dominant purpose
in making the prepayment was to gain a tax advantage.

For example, in Ilbery's case, the taxpayer was denied a deduction for a
prepayment of interest on a loan which was subsequently used to purchase an
income producing property. The prepayment was made solely to reduce tax and
there was no legal obligation on the taxpayer to make the payment in order
to obtain the loan...."

So the answer I guess in no.
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Reply: 2.1
From: Ric1 .

Thanks for that, T. I might have guessed the ATO would spoil the party!

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Reply: 2.1.1
From: The Wife

ric, do yourself a favour, and seek some professional advice on this matter, I'm sure you will find it enlightening.
~Life is a daring adventure, or nothing at all~
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