Join our investing community

Pre-paying Interest

Discussion in 'Accounting, Tax & Legal' started by Here_To_Learn, 26th Oct, 2005.

  1. Here_To_Learn

    Here_To_Learn Well-Known Member

    Joined:
    15th Aug, 2005
    Posts:
    315
    Location:
    Sydney
    I tried searching but found bits and pieces related to this topic.

    Just wandering if the experts here could put a few bullet points together and create a 'Pre-paying Interest' for dummies post or if anyone would share their experience in this area.

    While I understand in theory the concept of creating a tax deduction I still don't understand how it's arranged with a bank or timing in a financial year. :confused:
     
  2. Simon

    Simon Well-Known Member

    Joined:
    17th Sep, 2005
    Posts:
    520
    Location:
    Newcastle
    Lenders sometimes allow a person to pay up to 13 months interest in advance. This means prepaying interest in Jun for the whole next financial year.

    Can be useful if you need deductions this year.

    I think there were some ATO changes in the last few years in regard to this. Anyone?
     
  3. Dave

    Dave Well-Known Member

    Joined:
    17th Aug, 2005
    Posts:
    57
    Hi,

    I've not heard of any ATO changes and know of people who still do this.

    You basically need to work out your tax position early, and figure out which loan(s) you need to pay advanced interest on in order to get that tax position close to zero. Arrange it the start of June and they should have it sorted in time.

    For the ATO to allow it to be duductable, there needs to be some commercial reasoning behind it. In this case, perhaps a slight interest rate discount might be in order ;)

    Cheers
     
  4. NickM

    NickM Co-founder Staff Member

    Joined:
    20th Jun, 2005
    Posts:
    321
    Location:
    Sydney
    this strategy works particularly well if you have an unusually high income in one year. ie a Capital gain

    This should be planned no later than March / April and you generally have to lock your loan into a fixed interest rate for 1 year

    Cheers
    nickm
     
  5. Rolf Latham

    Rolf Latham Well-Known Member

    Joined:
    15th Aug, 2005
    Posts:
    45
    Location:
    Gold Coast and Sydney
    And of course you arent doing it to gain a tax advantage.

    You are doing it to get the .1 to .2 % discount you can get for pre payment.

    "Commercial" reasons are always good

    ta

    rolf
     
  6. MrDarcy

    MrDarcy Well-Known Member

    Joined:
    13th Sep, 2005
    Posts:
    283
    Location:
    Sydney
    Get your applications in early, don't leave it to June. I have had some lenders fix with a simple fax request, and another made me do an entire new application, valuation, credit check, the lot. Took over 4 months.
     
  7. Simon

    Simon Well-Known Member

    Joined:
    17th Sep, 2005
    Posts:
    520
    Location:
    Newcastle
    I think LE do it around May or June with a simple form to complete. I remember one year faxing a handwritten letter to them mid June from an internet cafe in the Golden Triangle on a trek stop!

    Cheers,