A Life Time of Tax.

[GreatPig]

Well one does have to wonder why someone who delights in informing others how little tax he pays thanks to his property investments is so keen to make others aware how much the average person pays.

If it's just to press home yet again that losses from property save you tax, well that's the same as losses from any investment.

GP

 

[Rixter]

Well one does have to wonder why someone who delights in informing others how little tax he pays thanks to his property investments is so keen to make others aware how much the average person pays.

If it's just to press home yet again that losses from property save you tax, well that's the same as losses from any investment.

Actually GP, we dont delight in it at all. I dont ever recall stating that we do. We do however delight in posting to help others out and hopefully provide them with something to aspire to through teaching them what tools/strategies are available out there for themselves to maybe put into practice also one day.

Both Mrs Rix & I presently pay no income taxes at all - infact the ATO owe us. We carry losses forward in the form of tax credits to use against future years income. But that's not the the reason for us to invest - deductions are purely just a tool that helps to maximise portfolio cash flow.

As to the original reason for this post, its to work out & give newbies an idea of how much money the average person pays in income tax, that they could instead be redirecting back to themselves through investments but never do.

Hope this helps.

 

[BayView]

*in Comic Book Guy voice*

Most pointless thread.... ever.

A number of threads here are useless and pointless as such, but it's just conversation, musings and so on.

It's all good.

I've often wondered how much tax I actually pay out of my hard earned, and before Sunfish jumps on me; I'm not whinging about it (well; just a little). After living in the USA for 3 years, no-one appreciates our standard of living more than I.

Great Pig, I agree with Rixter; as investors/business owners we need to be acutely aware of our taxes and how much we pay, and strive to find ways to minimise our tax at every turn.

After all; the Govt is always finding ways to gouge as much tax out of all of us as it can (just watch what they do to your super fund over the next 10 or 20 years), so it is in our interest to reciprocate. I personally don't lose one second's sleep when I minimise my tax.

This is one of the hidden benefits of (property) investing and owning a business, and if we can demonstrate to the newbies the strategies and tools to accomplish this then I believe the forum has provided a great benefit.

 

[Sunfish]

I've often wondered how much tax I actually pay out of my hard earned, and before Sunfish jumps on me; I'm not whinging about it (well; just a little).

Me jump? I did say:

OK Rix. Peace

You don't like paying tax nor do I. I'm off to bed.

 

[Sunfish]

Talking about tax:

I've found it very tax effective to own a small trading business which allows me take out "drawings" to cover personal expenses. The tax law does not say that you must pay down all biz debts before you can draw a wage. In fact, if you ran your biz without drawing enough to live on your name would pop up for an investigation very quickly. Mrs Thommo's car was the last private debt we had. The only finance expense met with tax-paid dollars is the Lady's CC fees.

We have never earned big money but live within our means, ie we wash our own dog, mow our own lawn, service our own car, do all manner of repairs ourselves. A dollar saved is $1.30 earned.

Actually, It has always been my ambition to have a "tax problem" so you must excuse me if I don't get enthusiastic about your problems.

 

[Rob G.]

Talking about tax:

I've found it very tax effective to own a small trading business which allows me take out "drawings" to cover personal expenses.

Do you mean drawings (withdrawal of capital) or pay yourself distributions from your company or pay yourself a salary as an employee ?????

Rob

 

[Sunfish]

Do you mean drawings (withdrawal of capital) or pay yourself distributions from your company or pay yourself a salary as an employee ?????

Rob

I have no company structure, just a partnership with Mrs Thommo. As a partner I an entitled to a salary and any "drawings" form part of that salary. I am not discussing income tax directly here, merely noting that "drawings" are a legitimate expense for the biz. They are still in the tax environment though. I haven't "avoided" anything.

Note also that keeping structures simple keeps costs down too. A dollar saved on accountant's fees is $1.30 earned.

 

[Rixter]

Note also that keeping structures simple keeps costs down too.

The simplest of things are often the best. It just people that like to complicate it.

I subscribe to the KISS philosophy.

 

[HiEquity]

Note also that keeping structures simple keeps costs down too. A dollar saved on accountant's fees is $1.30 earned.

Unless said accountant's fees are tax deductible!

I also like to KISS as much as possible...

 

[GreatPig]

that they could instead be redirecting back to themselves through investments but never do

They could, if they wanted to generate losses to accomplish it. Bottom line is, to get a deduction you have to have a loss, which naturally you expect to recoup in the future from capital gains.

But that's getting back to the CF+ vs CF- argument, which has been discussed ad nauseum before. The only "real" way to pay less tax without having to have a loss is by being on a lower tax rate (or being eligible for some sort of exemption). That could come from things like super, income splitting, spreading income more evenly across multiple years, or being resident in a lower-tax country.

I'm all for educating the masses, as long as it's balanced. Gearing has its risks, as has been highlighted numerous times over the last 12 months, and negative gearing property does too - primarily, insufficient capital growth to cover costs over your investment time frame. While it has worked very well for many in the past, there's no guarantee it will continue to work well into the future. There are both economic and political risks involved with the strategy (economic like lack of capital growth, and political like the removal or significant reduction of neg gearing or other deductions).

Provided the risks are also presented with the benefits, I don't have a problem. There's no free lunch. While everyone I'm sure would love to pay no tax (except Warren Buffet apparently!), they may not be so comfortable with the risks they have to take to achieve it.

GP

 

[Rob G.]

I have no company structure, just a partnership with Mrs Thommo. As a partner I an entitled to a salary and any "drawings" form part of that salary. I am not discussing income tax directly here, merely noting that "drawings" are a legitimate expense for the biz. They are still in the tax environment though. I haven't "avoided" anything.


Drawings are not salary, you are just taking some of your after-tax profits from the business. They are not a business expense.

Note also that keeping structures simple keeps costs down too. A dollar saved on accountant's fees is $1.30 earned.


If you don't mind being liable for your business and Partner's professional misdeeds then this is a cheap vehicle.

Structures are often put in place for business purposes, not just for tax.

Cheers,

Rob

 

[BayView]

Talking about tax:

I've found it very tax effective to own a small trading business which allows me take out "drawings" to cover personal expenses. The tax law does not say that you must pay down all biz debts before you can draw a wage. In fact, if you ran your biz without drawing enough to live on your name would pop up for an investigation very quickly. Mrs Thommo's car was the last private debt we had. The only finance expense met with tax-paid dollars is the Lady's CC fees.

We have never earned big money but live within our means, ie we wash our own dog, mow our own lawn, service our own car, do all manner of repairs ourselves. A dollar saved is $1.30 earned.

Actually, It has always been my ambition to have a "tax problem" so you must excuse me if I don't get enthusiastic about your problems.

Exactly my mindset SF!

I wonder how many others view this behavior as being a "tight-@rse"?

My mindset is the more ways you can save a dollar (including tax minimisation), and then utilise that saved dollar to earn more dollars from it the better.

My ambition is to be paying the same amount of tax as Bill Gates every year from so much income.

One of my mates who earns a decent quid farms out every single aspect of his life to someone he can pay to do it. Never lifts a finger to do anything; except cook the barbie and get the beer from the fridge.

He thinks that's cool.

I think he will be working for about 15 more years longer than he needs to with that mindset.

He wouldn't even know what a Phillips head screw driver is.

 

[sash]

Could not agree more. I am all for tax minimisation within the parameters of the law.

I find it curious the stupid things people do to lose money to avoid paying tax. Paying a reasonable amount of tax is good! It shows you are making a profit and keeps our mates at the ATO at bay!

Unless you are someone like Kerry Packer....we are all doomed to pay some tax....

I have also heard people get to the point to declare very little income...this is a false economy as it limits your ability to invest in properties. Given that the loc doc era of the past has ended...unless you have solid financials getting loans will be harder....so pay some tax...LOL!

Cheers
Sash

I wonder how many others view this behavior as being a "tight-@rse"?

My mindset is the more ways you can save a dollar (including tax minimisation), and then utilise that saved dollar to earn more dollars from it the better.

My ambition is to be paying the same amount of tax as Bill Gates every year from so much income.

 

[Sunfish]

Structures are often put in place for business purposes, not just for tax.

Cheers,

Rob

Mate! It works for me. Please no "free" advice.

I hope what I wrote wasn't read as advice, it was meant as thought for living.

 

[HiEquity]

I have also heard people get to the point to declare very little income...this is a false economy as it limits your ability to invest in properties. Given that the loc doc era of the past has ended...unless you have solid financials getting loans will be harder....so pay some tax...LOL!

Unless the low taxable income is mainly due to depreciation allowances and doesn't represent a real cashflow loss. I think this is what Rixter is getting at... I don't think anyone is advocating large -ve gearing losses by themselves as a good thing?

 

[LynnH]

A dollar saved on accountant's fees is $1.30 earned.

Sunfish

It also helps that Mrs Fish is an accountant, if I recall correctly .....

Cheers
LynnH

 

[kissfan]

I subscribe to the KISS philosophy.

I also like to KISS as much as possible...

Ummm..........nah I won't say anything

Regards
Marty

 

[Sunfish]

Sunfish

It also helps that Mrs Fish is an accountant, if I recall correctly .....

Cheers
LynnH

She was till August. But even though that would have eliminated our costs and her managers would have helped the setup, there has been no occasion in 40 years of running my own small businesses that we regretted simplicity.

We get along well but I'm not sure company/trust structures will solve any problems if the relationship is touchy.

 

[Sunfish]

Unless the low taxable income is mainly due to depreciation allowances and doesn't represent a real cashflow loss.

There are much higher depreciation rates available on plant and equipment. I think my rate on equipment is 25% deminishing. Not bad when the economic life can be over 15 years?

 

[GreatPig]

Unless the low taxable income is mainly due to depreciation allowances and doesn't represent a real cashflow loss.

But it does. You have to spend money on something to be able to depreciate it. If you don't spend money, you can't depreciate. It's essentially the same as a deduction, but spread over multiple years.

Also, from what I've seen mentioned on the forums, I believe depreciation comes off the cost base, so you effectively pay CGT on it later when you sell the asset.

GP