Interest Prepayment Question

From: Laurie Shaw


I have heard that it is possible to prepay interest to bring the expense into this financial year - wrt shares.

Does anyone know if in principle this is possible with property also? Loan is interest only so separating P from I is not a problem.

Any advices greatly welcomed

Regards
Laurie Shaw
 
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Reply: 1
From: The Wife


Laurie,

I've heard that it is possible, Dale should be able to tell us, where are ya Dale?

Cheers TW
 
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Reply: 1.1
From: Dale Gatherum-Goss


G'day!

Yes, prepaying interest is tax deductible in the year that it is actually repaid. Interestingly, there is now a question on the tax return that asks if you have prepaid interest which was not there in 2000.

In theory, you should have a commercial reason for prepaying interest rather than just for the tax advantage. That is, you should be getting something in return to benefit you such as a slightly lower interest rate.

Have fun

Dale
 
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Reply: 1.1.1
From: Owen .


Is offsetting a capital gain a good enough reason?

Owen

"Gambling promises the poor what property performs for the rich – something for nothing"
 
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Reply: 1.1.1.1
From: Laurie Shaw


Dale,

Thank you very much for the reply - I thought that would be the case.

One further question if I may. Is this commercial advantage a test the ATO requires or only your advice to an individual (ie advantageous personally)?

Regards

Laurie Shaw
 
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Reply: 1.1.1.2
From: Paul Zagoridis


As a rule Capital gains can only be offset by capital losses. Income can be offset by expenses. Prepaid interest is an expense.

I'd ask an accountant "how can I reduce my tax liability in this instance?"

Paul Zag
Dreamspinner
WealthEsteem coming soon at...
http://wealthesteem.dyndns.org/
 
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Reply: 1.1.1.1.1
From: Dale Gatherum-Goss


Hi Laurie

No unfortunately, this is part of the tax office's guidelines to work around the anti avoidance rules for tax. It makes sense though and so I'm happy enough to run with it if it will protect us.

Have fun

Dale
 
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