It is reported that many Australians are under pressure with increasing interest rates on their debt, such as credit cards or personal loans. In some cases the majority of their disposable income is being used to service the interest on these debts, which is generally non-tax deductible, leaving little left over to allocate towards their wealth creation.
Background
Many Australians may experience the problem of spiralling credit card debt. This problem arises due to a number of factors, including the ease with which credit cards are obtained, impulse consumer buying and increasing interest rates charged by credit card providers.
Consider the following two people struggling with eliminating their credit card debt due to other financial commitments and credit card interest rates:
* These calculations assume that the taxpayer has private health insurance and is not entitled to any allowances or rebates. Any entitlement to the low income rebate is not factored into these calculations.
Strategy
If Emily and Rolf make a forestry investment in the FEA Plantations Project 2008 (Project), they may then be able to use the tax savings they achieve through the investment to repay the debts on their credit cards.
Emily and Rolf’s investment in the Project could be financed through a loan offered by Forest Enterprises Australia Limited with no deposit or loan application fees, and which uses the forestry investment as security. The interest on the loan will be tax deductible, as opposed to the non-deductible interest payable on the credit cards at present.
Solution
The following table demonstrates how an investment in the Project can help alleviate the credit card debts of Emily and Rolf.
***
This summary assumes the investment in the Project comprises Option 1, Option 2 or Option 3 Woodlots (or a combination of these). Calculations assume that the taxpayers have private health insurance and are not entitled to any allowances or rebates. Any entitlements to the low income rebate are not factored into these calculations.
The investment process for both Emily and Rolf would be the same.
As an example, the solution for Emily would produce the following results:
*
This interest rate is indicative only. Finance is subject to approval by Forest Enterprises Australia Limited in its sole discretion. It is assumed that Emily uses the three year finance option offered by Forest Enterprises Australia Limited.
The total of Emily’s GST refund and tax saving exceed the first 12 months of principal and interest payments on the investment loan. This provides her plenty of time to save in order to meet the subsequent monthly loan repayments. The tax deductibility of the interest on the investment loan will assist.
Results
The credit card debt has been eliminated;
A cost-effective loan is created with a low 8.5% per annum deductible interest, as opposed to a higher credit card interest rate;
An investment is made which provides potential harvest income during the term of the Project.
Continuum Financial Planner is a privately owned financial services company. The company is a Corporate Authorised Representative and Corporate Credit Representative of Securitor Financial Group Ltd | ABN 48 009 189 495 | AFSL & ACL 240687
