Mark Hay
The Pre Payment Rule and Tax Variance

This Weeks Episode of Home in WA

Mark Hay



(08) 9225 7000

(08) 9225 7777

0418 953 742

28/118 Royal Street
East Perth WA 6004

 Here is a novel way of getting your own back on the tax man*. By prepaying your interest and other property expenses 12 months in advance, you are able to receive a tax deduction within the year you pay these expenses; this is a brilliant way to improve your cash flow.  So in reality it’s possible to pay your monthly interest and then just prior to the conclusion of the financial year, you then prepay the next 12 months interest in advance, therefore getting a double whammy tax deduction in the one year. This is known as the 12 month rule and is fully endorsed by the tax man.

Indeed, I have been utilising this method for over 25 years and it’s even more effective if you have a fluctuating income. However, there is one golden rule applying to prepayment of interest, whilst you can prepay and the bank will happily receive your payment, it is essential that your mortgage has been set up with the ability to prepay. In the event that it doesn’t have a prepayment facility and you are unfortunate enough to be tax audited, then not only will this deduction be disallowed but you will be fined heavily as well. Just ensure the bank is fully informed of your intention and that it is set up accordingly. Also, the banks will give you a slightly more favorable interest rate for prepayment.

Another novel way of beating the tax man is, instead of waiting for the end of the financial year and the completion of your tax return, you can receive your tax refund each and every week as an extra amount in your pay packet. In order to receive this you will need to fill out a tax variance form, which is 4 pages long and confirms all of the expenses and income for the year ahead. You then lodge this with the Australian Tax Office and within 6 weeks they send a ruling to your employer to add the appropriate amount of tax  you would have been paying weekly back into your pay packet.

Once again, this is a brilliant way to enhance your cash flow, so instead of waiting up to 18 months to receive your legitimate tax refund, you are actually receiving it on a weekly basis. Interestingly, over 65% of my clients still prefer to wait for the lump sum payment because they feel if they receive this on a weekly or fortnightly basis they are more likely to flitter it away. However, if you are well disciplined with your finances, this is a brilliant way to get a leg up on your cash flow.

Used wisely it can accelerate your personal wealth creation.

*Information provided by Mark Hay is of a general nature. Viewers should seek the assistance of a qualified investment adviser before making any decision or acting upon any information. Whilst all care is taken in preparation of this material, no warranty is given in respect of any information provided."