Debt management

Borrowings can be broadly divided into two types of loans: loans which are non-deductible and loans which are eligible for a tax deduction.

Generally speaking, borrowings that are utilized with the purpose of generating income for you in the future and considered tax deductible. This does not include your home loan (owner occupied) or credit card.

An example of a non-deductible borrowing is a loan arranged to buy a family home. In this case, the repayment will be made from after-tax borrowings. Therefore, if a client is in the highest marginal tax rate, then for each $1,000 in a loan repayment made, the borrower will need to earn nearly $2,000, pay nearly $1,000 in tax and leaving them with the net $1,000 to make the loan repayment. Clearly this is a very expensive type of loan!!

An example of tax-deductible borrowing is a loan arranged to buy an investment property, some shares or a business. In this case, the interest payments on the loan are tax-deductible and can be offset against the borrowers' income. Clearly, this is the right type of loan.

It is in the identification and management of these two types of borrowings where substantial financial advantages can be gained. Loans on individual properties can be split into four separate sub-loans enabling you to identify the deductible and non-deductible components of your borrowing. Split loan can be part fixed rate and part variable rate on one security property and can be separated as interest only or principal and interest.

Here at Locumsgroup, as we spend a lot of time effectively managing our client’s debt, we can effectively manage our clients' equity. Locumsgroup clients benefit from the company’s Mortgage Division team, where our specialist mortgage Consultants can structure a loan in the most appropriate manner for your personal circumstances. Please see the “Mortgage and Finance’ page of this website for further information.