Investment Property Tax Back Now
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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 and it works like this:
If we assume after all expenses of running your investment property adds up to $15,000 (i.e. depreciation, interest on loan, rates and taxes, management fees, repairs and maintenance etc.) and that the total income (rent) received totals for example $10,000, then you have a negative loss of $5,000 i.e. $15,000 – $10,000. You are then able to claim this cash flow loss of $5,000 from your taxable income for the year. 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.
For example the $5,000 for a person earning $65,000 pa 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 their more likely to squander the smaller weekly or fortnightly amounts. Yet if it is received in a lump sum they are more inclined to use the funds appropriately.
However for those more 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.
Image Source: Shutterstock Tax
August 26, 2014
Posted in: Blog