I would like to get some thoughts and views about whether I am overcomplicating things here.
My objective is as follows:
a) Increase my tax deductibility in FY15 (i.e. this year).
b) Retain the greatest amount of my own cash as possible.
My motivation is as follows:
a) I?m going to have a high tax bill this year and will likely have a lower bill next year (will have more deductable next year and will be negatively geared).
b) I want to work on keeping my cash liquid and for when/if I ultimately decide to put it towards a PPOR (via offset) to minimise non deductable debt. My strategy is to buy/hold so I want to avoid selling down the line to free up funds to offset non deductable debt.
So what I am thinking of doing:
(A) To maximise deductable debt this year:
Prepay interest this financial year for a component of my IP interest expense ? this will achieve my set objective of increasing tax deductibility this year and then allow me to manage next year accordingly.
BUT I prepay interest, assume:
$500k loan to fix, and prepay interest @ 5% (as an example)
= $25k interest bill.
That?s $25k of my own cash that I would have to use (I acknowledge that I would be doing this anyway next year over the course of the year).
So what I am thinking of doing to minimise use of my own cash:
(B) Set up a LOC to pay for the interest in advance. I am still thinking this through but I can set up a LOC secured against my IP and use this as a way to pay for my interest expense rather than dipping into my cash.
Does this sound about right?
My objective is as follows:
a) Increase my tax deductibility in FY15 (i.e. this year).
b) Retain the greatest amount of my own cash as possible.
My motivation is as follows:
a) I?m going to have a high tax bill this year and will likely have a lower bill next year (will have more deductable next year and will be negatively geared).
b) I want to work on keeping my cash liquid and for when/if I ultimately decide to put it towards a PPOR (via offset) to minimise non deductable debt. My strategy is to buy/hold so I want to avoid selling down the line to free up funds to offset non deductable debt.
So what I am thinking of doing:
(A) To maximise deductable debt this year:
Prepay interest this financial year for a component of my IP interest expense ? this will achieve my set objective of increasing tax deductibility this year and then allow me to manage next year accordingly.
BUT I prepay interest, assume:
$500k loan to fix, and prepay interest @ 5% (as an example)
= $25k interest bill.
That?s $25k of my own cash that I would have to use (I acknowledge that I would be doing this anyway next year over the course of the year).
So what I am thinking of doing to minimise use of my own cash:
(B) Set up a LOC to pay for the interest in advance. I am still thinking this through but I can set up a LOC secured against my IP and use this as a way to pay for my interest expense rather than dipping into my cash.
Does this sound about right?