Tax Planning Strategy #2 – Tax Refunds for Prepaid Interest
Lan Nguyen, Chartered Accountant
Big tax refunds for prepaid interest for a capital protected share portfolio (with NO cash required by 30 June).
Did you know that you can buy a parcel of blue chip shares by using capital protection and not lose your money if the share market goes down? At the same time, if you prepay your interest for these shares before 30th of June, you can get a tax deduction in this financial year. How great does that sound?
Now, why is this important?
Apart from the general tax planning strategy you can have by bringing forth expenses if you’re going to pay for certain items from a tax deduction point of view. Superannuation is one thing you can do, prepaying interest for share investment of a properties is another thing.
For example: Macquarie will lend you a 100% of the amount that you want to put in shares before 30th of June. So say its $50,000, and they’ll give you $50,000. They’ll also lend you the money to prepay the interest on that for the next 12 months. So zero cash out of your pocket before 30th of June. What that means is you can claim as a tax deduction the interests that you’ve prepaid and you get a tax refund in this financial year. What you’re doing is you’re using the money that you would have paid in tax, to pay interest on a bundle of shares.
What sort of shares do we use in these sorts of investments?
Well, generally speaking we try and look for blue chip share opportunities, something in a good strong consistent company like BHP and ANZ as an example. A company that has good growth potential but also the ability to pay consistent dividends as well. That’s the key. Because, see if you do this, it’s just a normal share investment. You have all the dividends in your name. You pay an interest and you’re paying back the interest repayment loan, and you’re getting a big tax refund in July or August based on the amount of interest you’ve prepaid. And it starts at $50,000 and you can put that up, we’ve had some clients do it for $100,000 or a $1 million or whatever it might be. So it really comes down to how strong your cash flow is and what surplus cash you might have, what level of assets that you have and how much of a tax deduction you want to get. It’s allowing you to with zero cash out have an investment in shares, that are capital protected, which is normally for a 3-year period. So if the shares go up in value you get all of that, if any of them go down you don’t lose your money on any of the individual shares.
Written by Lan Nguyen, Chartered Accountant and Wealth Adviser from Success Accounting Group.
Please come and talk to the Success team. We’re here to help, and this is another really good option to consider to get your tax down, and also build up some really great investment assets.
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About Lan Nguyen
Lan is the Founder and Chief Strategist at Success Accounting Group, Melbourne based CA firm. In a matter of short 8 years she has built up a reputable Chartered accounting firm with 3 offices and a team of 6 professional accountants and support team members. Her mission is to provide Innovative and Strategic Financial advice to help her customers make smarter financial decisions today for a brighter future.
Success Accounting Group is for established business owners who would like help to grow a sustained business. As a business owner you understand what drives your business success with our accounting team taking care of the rest.