INCOME TAX                   

        'Interest Only' is an option most tax payers (with investment property or business) take on their loans. This means that they will only pay interest each month, no principal repayment at all. This is because they want to maximise their tax refunds at the same time their cash outflow for loan is only interest.

        In Income Tax law, in Australia, if any act is done with the predominant aim of reducing the income tax payable, that act will be considered 'anti avoidance act' and would be considered as criminal offence.

        Interest only is an option given by lenders to borrower with the predominant aim of reducing income tax, known to the taxation office, but no action considered.

        In Australia so far there are only 7 income tax related cases that went up to the High Court (highest court) of Australia, they are all about interest deductions.

        There was a case where someone paid a 'guarantor fee' on each instalment repayment to the bank. This person claimed for both interest payment and guarantor fee as deduction. The court disallowed the guarantor fee from the claim, on the basis that only the interest on the lump sum loan is claimable.

        I wonder what will be judgement if the judges have to review the case on the basis of my case decision where i proved compound interest, which is interest on interest, not interest on lump sum loan only.  

        Business Tax payers and Investment property owners claim the deduction for the Compound interest paid on their loans. On a $ 300,000 loan at 6% for 30 years, total interest is $ 347,071.20.

        If one is on marginal tax 15% gets back $ 57,267 as refund on interest

        If one is on marginal tax 30% gets back $109,327 as refund on interest

        If one is on marginal tax 37% gets back $ 133,622 as refund on interest

        If one is on marginal tax 45% gets back $161,388 as refund on interest

        If tax payer is a Pty Ltd/ Ltd gains $104,121 in tax for Interest.

        Higher taxpayer gets 45% of the interest back.

        Alternatively the taxation system subsidises the lenders, as lenders pay 30% tax on their income.

        The middle income group around the world has 2 big holes in their pocket (from their wages and salaries), firstly tax, you don’t even get to see this money on hand as your earning is deducted prior to giving the salary on hand.

        Secondly the interest paid on LOANS and CREDIT CARDS are COMPOUND interest. This is supported by popularly elected ‘political representatives’ to ‘rip off’ the middle income group.

        Out of the remaining money brought home, one has to manage the inflationary prices on all groceries, utilities like gas water electricity phone, clothing and travel costs. How can this group EVER come up in their lives with the big 2 holes in their pocket??

        Any politician, who comes to power, primarily because of the middle income population that cast their votes in support, believing them as  representatives (so called) to look after their interest. But once they are in power, these guys want to be ‘faithful’ to those who financed them than those who really cast their votes in support!!!

Please read the excel file and go through contents page of Tax menu!!!

A letter to Commissioner of Taxation is available to know more on this