One taxation strategy is to prepay the interest on a loan for the next 12 months and claim a tax deduction in the current financial year. Prepaying interest is a way of bringing forward a tax saving that would have been claimed the next financial year.
- The maximum prepayment period allowed is 12 months
- The interest rate for the 12-month period has to be known in advance, which means it must be a fixed rate loan.
- This option is available on most fixed rate investment property loans
- Many lenders also offer discounts on fixed interest rates when the interest is prepaid.
Generally, a prepayment strategy can work well if the investor has an unusually high taxable income in this financial year. The decision on whether to prepay or not depends on the investor’s total tax position. Advice should be sought from your accountant or financial adviser to determine if this strategy will be beneficial for you.
For more information on fixed rate loans or interest prepayment, please contact us on (02) 9908 9888.
Patricia Williams is a credited representative (CRN 400458) of BLSSA Pty Ltd (Australian Credit License No. 391237).