Wowsa!! Can you believe that it is the end of financial year in just 18 day? How time flies . . . . if you are a property investor you still have time to make the most of a clever strategy to reduce your tax bill this year. Want to know more? Please read on . . . .
Have you ever heard of interest in advance? It’s a strategy that allows you to pre-pay the next year’s interest on your investment loans in advance. That’s right in advance!! It is only available on fixed rate investment loans and the conditions of these loans do vary between different lenders but it is a strategy worth considering.
There are several reasons why paying interest in advance can be a benefit for investors. The main reason is usually to gain tax benefits. It works by paying the interest that will be accrued in the following financial year (FY2014/2015) in the current financial year (FY2013/2014) and offsetting it against income earned in the current financial year (FY2013/2014). By why would you do it? Well, if an investor’s income was unusually high during the financial year or if a lower income is expected in the next financial year tis could be a good reason in order to maximise your tax deduction.
Lenders will also often incentivise clients to pay interest in advance by offering them a discount which results in less interest being paid overall. For investors looking to simplify their finances, by paying interest in advance, especially on an interest only loan, they can eliminate the need for periodic payments throughout the year. In terms of budgeting, paying interest in advance means that investors can enjoy a discounted fixed rate for the whole year, regardless of rises or falls in interest rates.
The interest in advance option is available to both new and existing investment loan clients. If you are considering it for yourself please consult a financial adviser to make sure that it suits your individual requirements.
Another way you can reduce your tax liability is to bring forward expenditure to before 30 June, if you are planning on repairs on your investment property. Care should be taken in determining whether a maintenance or repair is deductible or if it is considered a renovation or of a capital nature. Please consult a tax agent to make sure the work you are planning is deductible.