QUESTION:
I am 55 and recently received a bonus of $10,000. My gross earnings this financial year are $120,000 and this will drop to $110,000 next financial year. I have an investment property on which I pay $16,000 interest each year.
To reduce tax on my current year income, I am considering pre-paying the $16,000 interest for next year. I realise I may have surplus income of $16,000 as a result next year, but am counting on the extra $10,000 I can contribute to super in that year. Is this a workable solution? If I use a line of credit to pre-pay the $16,000, is the interest on that tax deductible?
ANSWER:
You will not be changing tax brackets but the prepayment means you will be saving tax in this financial year and not the next financial year. Keep in mind that you have to negotiate with your bank if you wish to prepay 12 months interest – they will give you the required amount to pay. If you simply dump the money into the line of credit account it will go straight off the principal.
