Negative gearing and family tax benefits

[meat_tray]

I was recently told that you cannot use interest expenses for an IP to reduce your income for determination of centrelink family tax benefits. I was also told that interest expenses for other investments such as shares can be used to reduce your income for the means test. Is this really true? It sounds very unusual and inconsistent.

I had been planning to super salary sacrifice to the max this year. Together with negative gearing from our LOC and margin loans. I expected this to make us eligible for full centrelink family tax benefits. This would total about 12K in benefits I think, plus of course the benefit of sacrificing salary into a 15% tax zone. And the super co-contribution on top of that. Our living expenses would be covered by dividends, with LOC/margin interest being capitalised. This mightn’t be the type of arrangement Centrelink has in mind with the family tax benefits but it does seem quite attractive.

I had also planned to buy a (negatively-geared) IP in late 2007, but now this doesn’t seem very consistent with the above plan if the rental losses will interfere with the means test.

I hope I’ve explained this clearly. I’d be really grateful for anyone’s comments on the feasibility of this financial structure.

 

[caz]

You are correct.
It doesn't seem right to me that interest for shares doesn't count but for property it does, but that is the rules.
May be as property is more for long term capital gain ?

 

[julia]

Firstly it is not that you can't claim the interest it is that you can't reduce your income by any loss on a rental property.

As for what Centrelink takes into account, it is all about where the information goes in the tax return. If you invest in managed funds or hold a rental property in a trust it is entered at item 12 and Centrelink do not add the loss back like they would if it was a straight out loss from a rental property entered at item 20.

 

[Kenster]

Firstly it is not that you can't claim the interest it is that you can't reduce your income by any loss on a rental property.

As for what Centrelink takes into account, it is all about where the information goes in the tax return. If you invest in managed funds or hold a rental property in a trust it is entered at item 12 and Centrelink do not add the loss back like they would if it was a straight out loss from a rental property entered at item 20.

Julia,

Can you review to see if I understand what you say correctly:

- If the property is held in individual name then the loss is not counted when Centrelink assessing the income test. This income would be higher than ATO taxable income.

- If the property is held in trust, then Centrelink assessed income is the same as ATO taxable income (assuming everything else is exactly the same)

Thanks.

 

[Ebbie]

If you invest in managed funds or hold a rental property in a trust it is entered at item 12

Hi Julia,

If you are making a loss from managed funds or a negatively geared IP using a hybrid trust, I take it the income is shown at item 12 and the loss (or the higher cost of interest) is shown at item D7. So you are saying Centrelink allows you to reduce your assessable income by the amount at item D7?

 

[julia]

Kenster,

Yes

Eddie,

The interest expenses is also shown at item 12 as this area has both income and deductions

 

[Ebbie]

The interest expenses is also shown at item 12 as this area has both income and deductions

OK, thanks Julia.