How to cash in on debt
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.”