Pay Tax in Instalments or Lump Sum

So I got a big tax bill. Results of a capital gain from a property sale, it was expected, so no problems.

If I pay the ATO in instalments it will cost 9.63% interest. The interest will be tax deductible next return. The money will also remain in the mortgage offset account reducing our interest costs for the duration of the payments. Marginal rate for tax will be between 32 and 37c depending on investments for next year. Expected interest could be between $300 and $500.

Paying by lump sum will increase our mortgage interest payments.

Better to make an instalment plan or pay in a lump?

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Australian Taxation Office
Australian Taxation Office

Comments

  • +1

    you done all the calc already, so just pick which one give you more $ in the pocket.

  • Please correct me if I am wrong.
    Don't think interest on loan to pay tax is deductible law.ato.gov.au

    • +1

      It's not a loan, it's one of the ATO payment options using their system. It specifically stated that the interest was deductible.

  • Judging by what you've said, unless your mortgage is above ~6.07%pa (assuming highest interest deduction) then you're better off to pay the lump sum.

  • Apply for a new credit card under these 12months interest free on offers and pay it on the card.
    Get the qantas points and deal with the debt next year.

    • +1

      The thought of 'deal with the debt next year' makes me shudder.

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