Want to save on home mortgage interest?
If you are self-employed read on, this may the best thing you have read in years.
Fact – Almost all home owners pay their interest in after-tax dollars.
Fact – Paying interest in pre-tax dollars is a much better arrangement.
The above statements are so obvious that many would say that they are barely worth saying out loud. But sometimes a great strategy can hide in plain sight.
Our clients, a self employed married couple trading via a trust, were looking to purchase their first property. They had a 20% deposit on a $500K property. Ultimately the property would become an investment property. Each of the persons involved had PAYG quarterly instalments of $8K and the quarterly BAS averaged $20K. Magnus made recommendations around the structure of their loan (a master limit with multiple accounts and an offset account). Arrangements were put in place for the trust to transfer $1.5K per week into the offset account. This reduced their interest from day one. At the end of each quarter the BAS amount saved would be paid off their mortgage and the equivalent amount would be drawn down from a dedicated loan account, transferred to the trust and used to pay the BAS. Similarly at the end of each quarter the individuals would pay the amount of their quarterly PAYG into the mortgage and draw down from their individual loan accounts to pay their tax obligation.
The effect of this is that in just over three years they had transformed the interest on the debt from non-deductible to deductible saving them approximately $8,000 per year in tax; lesser savings occurred in the period leading up to 100% swap. It should be noted that outcomes will vary according to individual circumstances, but the principle is universal.
If you are self-employed contact Warren Maris on 07-3483-0102 to see if and to what extent this is applicable to your situation.