Looking for a tax deduction before the end the financial year? If you are a property investor with tax-deductible borrowings, then one strategy that you can consider is prepaying the interest on your loan. The main reason why investors adopt such a strategy is to receive the full amount of the prepaid interest as a deduction in the financial year it is paid. For some investors, prepaying interest is an important part of a tax minimisation strategy, particularly if their income is expected to be lower in the following year(s).
Another feature of prepaying interest is that the loan is fixed for 12 months and the rate is generally lower than the lender's traditional 12-month fixed rate. This can also assist with budgeting for the period that the interest is prepaid.
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