How much tax do you pay (%)?

[kathryn d]

Last year I paid 0 % tax and I expect the same for this and hopefully a few more years.
My income is about 25% of our rental income.
Having lots of depreciation and renos helps.
Rob was actually 15K minus income, so our accountant told me to pay him to do work for me. So, the last house I bought,I put him in charge of all contractors and paid him for what work he could do himself.

Actually this year, we will qualify for a "low income heating oil rebate of $250".
I get the full amount of child tax benefits and GST rebates.

 

[lowb]

interestingly, some types of businesses can be benefitial taxwise... (after chatting to a friend)

1. suppose you own a restaurant, your restaurant buys lots of food/ingredients. if you dont sell all your food, you can eat the food at home by taking it away. in this case, food, which is a huge chunk of our daily expense, can be paid before tax

2. im thinking 'wow', do you suppose you could go into a JV with a small supermarket or small restaurant and then since its partly your business, you could use that as a way to pay for your food?

3. sounds dodgy? or sounds legit?

writing this as I am feeling very hungry,
ta

 

[geoffw]

Lowb

Although my Subway doesn't throw out a lot, there's only so much which is thrown out which I can use at home.

But I can claim takeaway food as a deduction- well, I could if I ate much takeaway. I would be checking out the states of other places, prices etc.

 

[alexlee]

lowb, may I suggest that you stick to basics. Good property selection, good research and analysis. All the tax tricks, structures, etc mean nothing if you don't go out and buy good properties that generate good returns. All your recent posts have been about everything EXCEPT the basics: property selection and buying. I mean, say you find that it's great if you set up a company and run a supermarket. Are you really going to do that? When you ask about whether auctions or private treaty are better, have you been out there attending some? Have you spoken to agents? Nothing beats doing it for real. No book (or this forum, for that matter) will give you the magic key to the best strategy. There's tons of information, but you still need to put it into practice.

Totally unsolicited comment, so feel free to ignore it.
Alex

 

[lowb]

hi

thank you for your kind reply

1. at the moment, i'm unsure of whether i have enough funds (in the process of refinancing). for my first IP, i think i really overspent on reno, and am still paying debt off.

2. im thinking of getting a part time job on the weekends in addition to my normal mon-fri job to save a bit faster. but when i think about it... small decisions based on knowledge/technique (e.g. tax, trust, auction, bargaining) can make up for say 1000 hours of work

3. hmm, im torn apart by the line between analysis paralysis and doing due diligence. since i'm sort of beginning, mistakes will really slow me down alot (but since i want to buy and hold for the long term, sanf is managable)

4. i'm going to attend auctions to just watch and learn at different suburbs. i'll bring a friend and it could be fun

thanks for your help
continuing to learn and grow

ta

 

[Brenda Irwin]

Well, I myself don't have any wages so I really don't 'earn' anything.

I have sold a few IP's this year for a profit, but I didn't actually do anything to 'earn' the profit as they grew in value all by themselves.

IP's sold have 50% capital gains exemption and are jointly owned with spouse so I guess my tax would be at 25%. Does that sound correct or do I pay tax on 25% of CG?

 

[alexlee]

IP's sold have 50% capital gains exemption and are jointly owned with spouse so I guess my tax would be at 25%. Does that sound correct or do I pay tax on 25% of CG?

If you want to be technical, assuming you're on the top marginal rate (45%), then you're paying tax of 45% on half your capital gains, with the other half of your capital gains being (implicitly) tax free.
Alex

 

[The Y-man]

hi

im thinking of getting a part time job on the weekends in addition to my normal mon-fri job to save a bit faster. but when i think about it... small decisions based on knowledge/technique (e.g. tax, trust, auction, bargaining) can make up for say 1000 hours of work

We did that as a couple - both of use working 2 jobs - when we got married and started on our investment journey.

It has 2 effects - we had more income - and had no time to spend it

Cheers,

The Y-man

 

[The Y-man]

hi

hmm, im torn apart by the line between analysis paralysis and doing due diligence. since i'm sort of beginning, mistakes will really slow me down alot (but since i want to buy and hold for the long term, sanf is managable)

Making a monumental mistake like we did at the start can really get you motivated too to stop the ship sinking

Cheers,

The Y-man

 

[Les]

G'day Brenda,

or do I pay tax on 25% of CG

In direct answer to your question, the above is what I believe happens.

Some other thoughts that I think apply are:-

1. The date of sale is based on Contract date, not settlement date - thus, these "might" be taxed at FY05/06 levels, not FY06/07 !!! If FY05/06, then your Tax on half the gain (on half the IP's sold since jointly owned) would be taxed at 48.5%. If contract dates were FY06/07, this would be 46.5% instead.

2. The above assumes that the gain WILL bring you into top Marginal Rate. It depends on just how many were sold, and at what Capital Gain. You mentioned "a few IP's" so I'm assuming maximum hurt (sorry!!)

Other things to consider are - is it worth making some Undeducted contributions to your Super? This might help to lower immediate Tax paid (but could "lock up" the gain - still, might be worth a thought....

And I'm sure you'll already be across this, Brenda, but wanted to include it for others ... Also, ensure that the Capital Gain you post has considered any remission for previous Capital costs you've made (e.g. re-stumping a house, building a garage, re-roofing, etc) as these should lower the gain you've made. This also includes Solicitor's fees on buying/selling, RE agent's fees for sale, etc. Maybe the gain you've made is not quite as large as first thought.

Also, I've heard that, if you have sold in the NEW FY, then your requirement to cover the CG Tax won't apply until after the end of FY07 - this could be nice as it allows you to invest those $$ for the next 12 months or so... (Can't be all bad)

Regards,

PS Not for you, Brenda, but just the usual disclaimer - the above is purely my opinion and is not intended to be advice. Hope it helps to channel some thoughts though...

 

[Leandro]

Making a monumental mistake like we did at the start can really get you motivated too to stop the ship sinking

I am intrigued, what was the mistake? Do you mind sharing.

 

[alexlee]

Check out the Y-Man's interview in the "interview" section.

http://www.somersoft.com/forums/showthread.php?t=27374

 

[lowb]

The more tax you want to save...
The more agressive you need to me...
Has anyone had bad experience with tax auditors?

 

[The Y-man]

Has anyone had bad experience with tax auditors?

To us, the issue is not the auditors - as everything we do is above board - it's the cashflow that becomes the killer.

The more tax we defer (we don't actually make it disappear by magic - we merely push it into the future), the more cashflow is needed to support the deferral.

Cheers,

The Y-man

 

[grossreal]

hi all
interesting post
and I am interested in the 4.55% that are in the 1 mil income
what there tax bill is.
and are they going to tell you or me.
tax is a very interesting area of business and the amount paid is very dependant on your income stream, how it is derived and how it is paid
and to ask how much tax you pay for people in the higher total income area would be very difficult to post so clicking on 1 mil income per year is easy and I would think on this board there are alot more them 4.55% I would say that there are a few that are double that figure but for me income or payment in what ever form is not nor should it be seen the same as tax.
you are asking one question but the poll is asking two very different questions.
and Sultan of Swing your calcs are out I know over 4 in sydney that are in that realm and thats not allowing for the other states.

 

[redwing]

Is there any kind of calculator available that you can work out your tax component in advance as a guide?

I know from looking at PIA once before that there is a Tax Variation Calculator built in; and on the IP ProjectionI was looking at it reduced my tax rate to about 5.8%

 

[lowb]

The more tax we defer (we don't actually make it disappear by magic - we merely push it into the future), the more cashflow is needed to support the deferral.
/QUOTE]

hi

disclaimer*note that this is probably wrong
Do you mean, by this, that you negative gear now (deferring tax)... and when you sell you need to contribute?

1. Actually, I don't understand what is meant by 'deferring tax'... and how come you need cashflow to support the deferral. Would you please tell us more

2. i'm trying to be a bit more organised/neat with keeping reciepts and all that, but a lot of it is just stuffed in a folder. if a tax auditor comes, i just have no idea how they are going to go through all that junk (so messy). hey, in a way, if your records are messy will they just give up

3. hi redwing, for me i tried playing around with e-tax. try putting all sorts of value in there and then it calculates your tax and your refund on the screen

4. hi grossreal, so its about income stream how it is derived and how it is paid. for employees, i suppose we should try and stream as much payg income into business/trust entities and then the business/trust entity income stream expenses are deductible. even if IPs are owned in your name, i read that you can use a technique called equity release to stream funds into the business/trust

 

[The Y-man]

Actually, I don't understand what is meant by 'deferring tax'... and how come you need cashflow to support the deferral. Would you please tell us more

As you have rightly asserted, very typical example would be a negatively geared property (i.e. you are deferring tax until such time you sell the property, at which point you pay CGT), or where money is borrowed to buy (complying) growth shares or managed funds (and you claim the interest).

Cheers,

The Y-man

 

[redwing]

Just thinking...as Property Investors we of course pay Stamp Duty on our Purchases and Capital Gains Tax on any Sales (I'll have to revise that 5.8% I probably paid more tax than some people I work with due to the last IP purchase in this FY )...add to that GST yada yada yada..