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The IOA Loan and how it can help your tax position

05th May 2017

Disclaimer: The below information is generic in advice. Specific tax advice should be sought from your tax adviser with regard to your own situation and need.

The end of financial year is coming around again, and fast. For investors in both commercial and residential property, there is an opportunity to reduce your taxable income by bringing forward next year’s loan repayments.

This is the IOA loan – or Interest Only in Advance

Under an IOA structure, the borrower selects a fixed rate term for their loan (usually 1-5 years). Repayments would normally be deducted monthly on an interest only basis – under this structure, the bank or financial institution will allow you to make the next 12 months’ repayments in one lump sum, in this tax year.

Consider the impact of a $500,000 loan fixed at 4.5% per annum – paying your next 12 months’ repayments in this tax year would reduce your taxable income by $22,500.

Some further benefits of borrowing under an IOA structure include:

  • The banks will often offer a discount for paying interest only in advance
  • The banks will usually allow this interest expense as an addback when assessing income for future borrowings or reviews
  • You would be able to set aside funds in the next year to pay interest in advance again in the next financial year, repeating the cycle of reducing your taxable income

The main concern lies in the impact on your cashflow in taking out too much cash.

But you will need to hurry if you want to make this happen as banks are heading into their end of financial year silly season – a lot happens between now and 30 June and settlement deadlines are already being announced.

There are more than 4 lenders active in the market and some great deals are to be had, so don’t be afraid to look around for a better way to finance your property.


Rod Cross is principal and small business lending specialist at Regional Finance Solutions Coffs Harbour. He has twenty years lending experience, holds a degree in Business Management and Finance and is a member of CAFBA and the FBAA. For more information or a consultation regarding your lending needs, Rod can be reached on 0437 124 936