How to cash in on debt

Sunday Territorian - - NEWS - @keanemoney AN­THONY KEANE

TAX and debt are two of the least sexy words in the English lan­guage.

How­ever, at this time of year, you need to be think­ing about both of them if you want to en­joy some ex­tra money soon. Money — now that’s a sexy word.

More than 10 mil­lion Aus­tralians are in line for an ex­tra tax re­turn bonus of up to $1080 thanks to the Gov­ern­ment’s tax cuts. But why stop at $1080 when you can po­ten­tially get back hun­dreds or thou­sands more dol­lars via a tax re­fund from July?

All you need to do is em­brace tax and debt (but not in a weird, sexy way) and the cash will fol­low.

In­ter­est paid on any loan that’s used to buy in­come-pro­duc­ing as­sets is tax de­ductible. Prop­erty in­vestors claim it ev­ery year, as do many share in­vestors who have bor­rowed money to build their stock port­fo­lio.

If you’ve got spare cash or are look­ing to off­set any cap­i­tal gains made on other as­sets, you can pre­pay up to one year’s in­ter­est in ad­vance and claim it in this year’s tax re­turn. For ex­am­ple, if an in­vest­ment prop­erty costs you $20,000 in in­ter­est each year, you can pay in­ter­est for all of this and all of next year be­fore June 30 — cre­at­ing a tax de­duc­tion of $40,000.

Work­ers and self-em­ployed people can pay for a whole lot of work-re­lated stuff in the month ahead and then be able to claim a tax de­duc­tion for the ex­pense from July.

If you need the item or sub­scrip­tion, why wait an ex­tra year to get a chunk of your money back?

It may even be worth­while whack­ing pur­chases on a credit card in June — as long as you can pay it off within the card’s in­ter­est-free pe­riod — so you get the tax de­duc­tion early in the new fi­nan­cial year.

If you’re self-em­ployed or own a small busi­ness, re­cent Gov­ern­ment changes to tax rules have made it even more at­trac­tive to use short-term debt to grab a tax ben­e­fit.

Through the en­larged in­stant as­set write-off, you can now claim a full tax de­duc­tion on any busi­ness as­set — such as equip­ment or a car — cost­ing less than $30,000. There’s no limit to the num­ber of items or pur­chases so it cre­ates a po­ten­tially huge boost to cash flow. Just make sure it can be paid back.

People want­ing to pay down their HELP debts have only a few days to act if they want to min­imise their loan.

In­dex­a­tion of HELP debts — based on in­fla­tion and cur­rently run­ning at 1.9 per cent — will push up their out­stand­ing bal­ance from June 1.

People’s Choice Credit Union spokesman Stu­art Sy­mons says the less money that people owe when in­dex­a­tion is cal­cu­lated, the smaller their in­crease will be.

“Ev­ery lit­tle bit you can re­pay helps and the sooner you start chip­ping away the bet­ter,” he says.

“If this is your most ex­pen­sive debt, then it’s best to tar­get it. Oth­er­wise, pay down debts which are car­ry­ing higher rates of in­ter­est.”

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