How do you get more tax back throughout the year, rather than a lump sum at tax time?

With the growing surge in property investment, there is a wave of first time investors who are coming to the market and are unaware of some of the tricks of the trade. With the use of one such tool, a significant turnaround in a lot of investors’ cash flow can occur.

Instead of waiting until the end of the tax year to claim back your negative geared loss, it is possible to arrange for any tax refund due to be credited back into your weekly pay packet.

How to get more tax back now

If we assume all the expenses of running your investment property add up to $15,000 (i.e. depreciation, interest on the loan, rates and taxes, management fees, repairs and maintenance etc.)

And the total income (rent) received totals for example $10,000.

Then you have a negative loss of $5,000 i.e. $10,000 – $15,000 = -$5,000.

You are then able to claim this cash flow loss of $5,000 from your taxable income for the year.

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Instead of claiming this from your tax at the end of the year, you can obtain a form from the Tax Office called a Tax Variation Form (formerly known as a 221D Form).  On this form, you list all your anticipated expenses and income for the property and forward the form to the Tax Department.

It is possible to quite accurately predict both expenses and income, as you will know your interest rate, depreciation rent and other expenses such as rates, taxes, strata fees etc that can be estimated from the previous year’s charges.

Once you have lodged the form (I strongly recommend retaining a copy for your own records) the Tax Department will take approximately six weeks to process your application.  At this time they will then notify your employer of the variation to the amount of tax to be taken from your pay packet each pay period.

Potential cash back throughout the year

For example, the $5,000 for a person earning $65,000 p.a. would result in approximately $2,300 refund so upon receipt of the variation from the Tax Department will pay this back to you by way of reducing the amount of tax they take out each week i.e. $44.00pw extra would be available.

Whilst this is a great way to improve your cash flow, I find a good majority of investors prefer to have the tax refund as a lump sum paid at the end of the year, as they tend to feel they’re more likely to squander the smaller weekly or fortnightly amounts.  If it is received in a lump sum, they may be more inclined to use the funds appropriately.

However, for those investors with a tad more budgetary control, then this proves an excellent way of improving your cash flow, especially if you are a multiple investor with several properties.

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