Tax Planning Strategy #3: Debt Optimisation
Lan Nguyen, Chartered Accountant
Pay off your home loan sooner, minimise bad debt and maximize your tax deductions for investments.
So debt optimization, what is it?
Let’s say, you have a $500,000 loan on a property worth $750,000. Debt optimization is taking home load debt, which is not tax deductible, paying it off faster and at the same time transforming it into tax deductible debt if you use it to be borrowed for other income-reducing assets like shares or managed funds or another investment property.
How does debt optimisation work?
Very simply, we would refinance your home loan and set you up with a new home loan hopefully with a lower interest rate with lower fees. One of the benefits of the new loans that we’re using is that they’re split loans. It’s one loan but split into two so you get two different bank statements, and what we’ll help you to do is focus on putting any surplus income that you might have into the non-tax deductible side, so that goes in there and reduces that over time. What that means is, say you pay off $10,000 dollars from your non-tax deductible home loan, you’ve now got $10,000 dollars in the other loan that you can take out and use for investing.
So as you’re knocking the non-deductible loan down you can borrow out other deductible amounts for shares, managed funds, whatever it might be even a deposit in another rental property, and you’re converting your debts so over time the non-tax deductible debt goes down and tax deductible debt goes up. In five or ten years you’ve fully paid off your home loan, you still got the same amount of debt but now it’s all tax deductible. More importantly from a wealth creation perspective you now have easily far greater than that amount of debt in other invested assets like shares or managed funds, and that really goes a long way towards helping with your wealth creation, as we talk about here at Success Accounting Group, towards reducing your freedom gap.
If you have had a freedom planning meeting with us you’ll understand what a freedom gap is, and that’s helping you to achieve a better financial future by making smart decisions now. That’s the third strategy, debt optimization. If you’ve got a home loan or investment property loan, contact us and we’ll give you a free loan report and give you a comparison with what you might have had a few years ago with the what the latest rates are now, and how we can help you to improve your wealth in a large way.
Written by Lan Nguyen, Chartered Accountant and Wealth Adviser from Success Accounting Group.
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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.
Success and Wealth
Success Accounting Group Pty Ltd
Oakleigh, VIC, 3166
