Pre-Paying interest ? Your portion only

devank

devank

I'm in a situation where my annual leaves (more than 3 months) paid out just before the end of financial year. There is also 6 months termination pay but I believe it is taxed at lower rate. That means I would get 21 months worth of pay coming in this financial year but less than 1 year worth of pay in next financial year.
All our loans are 50:50 between my wife & myself.

Is it possible to pre-pay my portion (50%) of IP interests to maximise my tax return?
 
possible, if you can have a seperate loan. To pre-pay it needs to be a seperate, fixed interest in advance loan. It cant be just you making an extra payment to part of a loan.

So if you and the wife owe $100k jointly on property A, you would need to split the loan into two $50k loans, one of which you change to interest only in advance.

Does that make sense?
 
Don't know about that from a tax point of view. Ownership generally determines deductibility.

Perhaps if you each had separate loan (each would have to guarantee the other's loan).

This is another reason why I prefer to avoid joint ownership of property. Things would be much easier if you had 1 each rather than 2 at 50/50 (for example).

Anyway, it is good to see you planning ahead. Most people would think about this in June - June 29 usually!
 
tobe said:
So if you and the wife owe $100k jointly on property A, you would need to split the loan into two $50k loans
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Are you saying that it is possible to have single name on each 50K?


Terry_w said:
This is another reason why I prefer to avoid joint ownership of property. Things would be much easier if you had 1 each rather than 2 at 50/50 (for example).
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Few reasons.
1. Serviceability is higher.
2. It is easier if one dies.
3. Tax time calculations are easier if it is 50:50 instead of say 99:1
4. Future always throws surprises.. so keep it simple.

Terry_w said:
Anyway, it is good to see you planning ahead. Most people would think about this in June - June 29 usually!
Click to expand...
I'm trying to push my end-date (@ work) to be 1st of July instead of 30th of June... this is plan B :)
 
Brady said:
Not sure about other banks but CBA does it.

https://www.commbank.com.au/personal/home-loans/fact-sheets/Property_Share.pdf

Pretty straight forward, would have $50k loans in single names but you would be guarantors for each other.

For specific tax advise speak to accountant regarding the deductablity.
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That wouldnt allow it to be tax deductible in the way that Devank refers to though. He and her still own half the house each, so get half the deductibility each, regardless of the loan setup.
 
dtraeger said:
That wouldnt allow it to be tax deductible in the way that Devank refers to though. He and her still own half the house each, so get half the deductibility each, regardless of the loan setup.
Click to expand...

so you reckon both would be eligible for half the variable and half the fixed interest in advance regardless whose name the seperate loans were in?
 
devank said:
Thanks for that info Brady.
That PDF does sound like the solution. It is designed for 'friends' who go into investments (business). Each finance their % in their own way.
Click to expand...

Thought it would help :)

Not friends with your wife?

Haha but really that product should suit your needs and don't see a problem with it from the banks point of view.
 
How about if I create an access (or saving or similar) account on my name alone and pay the 50% of the interest from that? Wouldn't that be 'clean'?
 
devank said:
How about if I create an access (or saving or similar) account on my name alone and pay the 50% of the interest from that? Wouldn't that be 'clean'?
Click to expand...

Are you talking about a seperate offset account in just your name?

No because the offset will still be reducing the loan which would be joint.


Would need seperate loan in just your name alone.
 
No just an existing joined account and an individual 'access' account.

These are the facts:
- Property is owned 50:50
- We both are liable for the whole loan
- 50% of the interest payment is clearly going from one person
- other 50% of the interest payment is clearly going from the other person

So.. it kind of make sense to claim the interest portion separately.
 
devank said:
No just an existing joined account and an individual 'access' account.

These are the facts:
- Property is owned 50:50
- We both are liable for the whole loan
- 50% of the interest payment is clearly going from one person
- other 50% of the interest payment is clearly going from the other person

So.. it kind of make sense to claim the interest portion separately.
Click to expand...

No it doesnt, unless I'm missing something.

If the loan is joint you're reducing the loan evenly.

If the loan is

DevankpersonA & DevankpersonB Joint Loan $100k
Even if you have $50k from a single named account or even $50k in single named account offseting. Still would be $50k interest charged and deductions split between the two.

Only way I see it being ok

Devankperson A $50k w/ person B guarantor

Devankperson B $50k w/ person A guarantor
funds either reduced on this loan or in offset.

Then only A would get the deductions as interest would only be charged to them
 
Sorry.. may be I wasn't clear as usual.

Loan amount doesn't change. It is a fixed loan for next two years.

Person A is simply pre-paying the interest (for the 50% of the loan).
Person B is doing the regular monthly interest payments.
 
devank said:
Sorry.. may be I wasn't clear as usual.

Loan amount doesn't change. It is a fixed loan for next two years.

Person A is simply pre-paying the interest (for the 50% of the loan).
Person B is doing the regular monthly interest payments.
Click to expand...

Doesn't matter who makes the repayments. It's a joint loan.

If you pre-pay 50% doesn't matter.

Both will still have the other 50% of the loan shared between the two as thats how the loan is set up.
 
Brady said:
Doesn't matter who makes the repayments. It's a joint loan.
Click to expand...

Here is another example. We have a joined LOC. We both take money out of it to buy shares individually. At the end of June, I calculate the % share of interested charged based on the amount taken out by each person. That was the right way to do according the Tax experts.

Isn't this somehow similar to the posted question?
 
devank said:
Here is another example. We have a joined LOC. We both take money out of it to buy shares individually. At the end of June, I calculate the % share of interested charged based on the amount taken out by each person. That was the right way to do according the Tax experts.

Isn't this somehow similar to the posted question?
Click to expand...

I'm not an tax expert so I would recommend speaking to one...

It's a different senario...

You're talking about deductablity from taking funds, instead of deductability from repaying. Also the shares are owned individually.
 
devank said:
Thanks for that info Brady.
That PDF does sound like the solution. It is designed for 'friends' who go into investments (business). Each finance their % in their own way.
Click to expand...

It does NOT discuss the tax deductibility and to whom for any interest or principle payments.
 
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