June Interst is it deductuble 2010?

[JPS25]

Hi

The Interest on our IP added to loan 30th June by the bank but not paid by us until the end of July is it tax deductuble this year 2009/2010 or next 2010/2011?

Also Ip loan is only in husbands name so I had to go guarantor as equity was being used on our home (both names) the solicitor bill for this does it get added to the base cost for CGT or is it deductuble?

Thanks for your help still new at this

JPS25


JPS

 

[ozmale42]

Interest would be deductible when it is incurred, not paid. So to the extent the interest debited to your account on 30 June relates to any aprt of the year ended 30 June 2010 you should be able to deduct it in that year.

If the solicitors bill was rendered in relation to services provided in order to acquire the property then it is added to the CGT cost base and hence is non deductible.

 

[alexlee]

Interest would be deductible when it is incurred, not paid. So to the extent the interest debited to your account on 30 June relates to any aprt of the year ended 30 June 2010 you should be able to deduct it in that year.

On that logic, prepayment of interest in June for the next financial year would not be deductible. Yet, prepayment of interest is deductible in the year it is paid.

 

[dan c]

If it appears on your June statement, then it is deductible, because it has been 'charged' to the loan. It doesn't matter when you make your repayments.

Rental expenses are deductible when paid, not incurred. The interest is paid when it is charged to the loan.

Otherwise those capitalising interest would not have an interest claim.

 

[ozmale42]

On that logic, prepayment of interest in June for the next financial year would not be deductible. Yet, prepayment of interest is deductible in the year it is paid.

The interest is deductible under S8-1 which allows a deduction for all losses and outgoings to the extent to which they are incurred in gaining or producing assessable income....etc.

While logically you're right in that on the same basis prepayments would not be allowed , there are special rules relating to prepaid interest.

- you can claim prepaid interest up to 12 months in advance

- claim is limited to $1,000 if carrying on a business as opposed to being a private investor

Personally I don't favour prepayment of interest given that

(1) it's only a benefit of timing only

(2) you need to have the cash to prepay it in the first place - funds which may be better utilised elsewhere for abetter return

(3) its only a one off benefit which you must keep doing each year to ensure the benefit is not lost

Cheers
Peter

 

[redsquash]

On that logic, prepayment of interest in June for the next financial year would not be deductible. Yet, prepayment of interest is deductible in the year it is paid.

Tax law and logic regularly have no connection in my experience.
if you have death taxes why not have birth taxes

 

[JPS25]

Thanks everyone for your help it is appreciated

 

[wylie]

.....its only a one off benefit which you must keep doing each year to ensure the benefit is not lost

Just thought I would add to this part of Peter's answer.

We have been prepaying interest since we made a capital gain and that particular year, we prepaid interest to bring our expenses forward to offset the gain a little.

It does become problematic because the next year, if we had not prepaid again (and had the funds to do that - even if borrowed funds), we would have had a taxation issue that following year.

We have been prepaying ever since, sometimes more or less depending on circumstances. We have seven loans, so can juggle things a little.

This year, we wanted to prepay again as hubby stopped work and we will be making a gain this financial year. We didn't want to prepay the whole of a $460K loan so we split the loan into two and fixed and prepaid $200K and left $260K variable. We prepaid two other smaller loans and left some variable.

I suppose what I am saying is that it doesn't have to be "all or nothing" and for us, we have been able to try and prepay enough to make it work for us, without suddenly stopping the prepayment altogether and having no interest that year, which messes up the tax situation. We are "stepping down" I suppose.

I hope that makes sense because I know what I am trying to say, but not sure if I am making it clear.

 

[sydsider]

Prepaying interest is most beneficial if you know you will be in a lower tax bracket the next financial year. If you are in the second highest tax bracket this year and will be in the lower bracket next year then for every dollar of prepaid interest you will be getting back 40 cents instead of 30 cents. Possible scenario would be if you made an one off investment gain in the current year, or you know you won't be working full time next year.

 

[JPS25]

Rent in offset account

Thankyou everyone

We have learnt so much just reading and soaking in all the info from all of you on this and another forum. This is is our first IP so great to get feedback and more from you all.

On another note both our IP and PPR have separate offset accounts connected to each of them. We have our rent (first lot just due to go in) set to go into the offset for the Investment Loan is it possible to transfer this to our PPR offset and let it sit till the end of the month when interest is then due in order for it to go to work for us. Up until now we have paid all interest due out of our own money while the property was being built, we did the Handover early June and tenants moved in early July.

Any help would be appreciated

Thanks JPS