Ouch - $30K being taxed and not much deductions to off set

Discussion in 'Accounting and Tax' started by bumblegoodie, 2nd Jun, 2015.

  1. Scott No Mates

    Scott No Mates ...and people wonder why?

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    Can we get fully lucky back to provide some guidance?
     
  2. Paul@PFI

    Paul@PFI Tax, SMSF & Planning

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    Fully Lucky does not need to lodge a return. His depreciation deductions always equal his income.
     
  3. sanj

    sanj Member

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    He's currently on his yacht in the med, perhaps moshe or david can fill in?
     
  4. skater

    skater Capitalist

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    He does have superior skills in this regard. I reckon we should get him to give a seminar on it.
     
  5. bumblegoodie

    bumblegoodie Call me BG

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    thanks Paul, Skater, MRO, Terry and all....

    great advice guys and gals.

    i think iam getting the picture a little better now.

    Expert advice is very important and can save u heaps in the long run
     
  6. greedy2000

    greedy2000 Member

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    Salary Sacrifice to super up to your limits ($30K <50, $35K>50). on an income of $150K. assuming you're under 50 you could do say $15,000 pa to super.

    This would save you about $3,650 pa in tax and instead of wasting money you'll have improved your net financial position.
     
  7. bumblegoodie

    bumblegoodie Call me BG

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    hehehe thanks.

    Yes, this is good but less money in my pocket to invest.
     
  8. greedy2000

    greedy2000 Member

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    its still yours to invest, you can do what ever you want with it, you just can't touch it for a very long time thats all.....
     
  9. bumblegoodie

    bumblegoodie Call me BG

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  10. MRO

    MRO Member

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    Any investment with the main selling point being the tax benefit is of concern to me.

    If your focus is to reduce your tax it might be a good investment.

    If your focus is to maximise your wealth then maybe not.
     
  11. Paul@PFI

    Paul@PFI Tax, SMSF & Planning

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    That's isn't what the spruiker is offering. Its not a free deduction of $13K a year.

    Look at all the property cashflows, deductions etc and potential to appreciate etc. And ask yourself how overvalued it may be. Spruiking just one of the deductions would be like me saying you can claim a deduction of $35K ....Yeah just the interest on the loan. But I'm also ignoring the taxable income. That's what this flyer is doing. If you are thinking -- Walk away ?. Its just misleading. What other misleading comments could be said ?

    In five years your biggest problem may be the positive gearing problem. Or its still worth less than you paid and stuffed up your borrowing capacity and draining your cashflow.

    I would never have guessed the property is in QLD. I can hear the sharks circling. Duhhhh Duhhhhh..Duh Duh Duh Duh

    Tip : mark the email as spam.
     
  12. greedy2000

    greedy2000 Member

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    Great southern offered a 100% tax deduction on their agriculture investments. They also lent you as money to purchase their investments as well.

    That all ended well didn't?

    MRO is right don't do something just because of a tax deduction (expect for contributing to super :) )
     
  13. skater

    skater Capitalist

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    This! ^^^
     
  14. hobo

    hobo Member

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    This thread boggles my mind and hurts my brain. Seriously!
     
  15. geoffw

    geoffw Untitled

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    There's another issue here. The OP probably didn't expect this big tax bill, so it may be hard to pay. It was an unplanned expense which will hurt his/her budget several.

    This can be a big problem working two jobs. The weekly withheld tax doesn't come anywhere near the tax which really needs to be paid.

    There's nothing much which can be done about the last year's tax withheld. But what is likely to happen now is that the op will be required to make periodic payments to the ATO to ensure that they don't have such a big bill in the future.

    I've got a far bigger tax bill for the last FY due to making a good profit on a property sale. This is a bill I was expecting. However I hadn't expected that this put me into a tax bracket where I would have to pay back a big hunk of my student loan as well.

    I'm still way ahead though. The only reason that I have a big bill is that I made a lot of money.
     
  16. andrewtfarr

    andrewtfarr Member

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    Bumble - What LVR do you have over your existing 4 properties???

    Have you considered increasing LVR which will both release equity to allow you to purchase more property etc? This will also increase the amount of deducatable interest you can claim on your existing properties and may help to keep you tax bill for next year down...Interest is your single biggest deductible on any property, so if your LVR for example is at 50% across those properties you are earning heaps in rental and paying bugger all in interest which = additional income which isnt taxed until the end of the financial year...if you can match up what you pay in interest by increasing your LVR to what you receive in rent on each property then you may not have such a painful surprise at the end of the tax year...and then have extra cash (released equity) to buy us all coffee etc.
     
  17. bumblegoodie

    bumblegoodie Call me BG

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    thanks for the advice Andrew.

    Yes my current IPs are quite low in LVR.

    Are you saying that if i re-finance my existing loans to a bigger loan for each of the properties resulting in a higher LVR then i can claim more deduction in tax?
     
  18. andrewtfarr

    andrewtfarr Member

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    Here are some numbers...lets assume you have $1million worth of property consisting of 4 x $250k properties.

    Scenario 1:
    Rental Income = $250 per week = $13000 per year
    x4 properties = $52,000 per year in total rental income.

    If your total lending is at 50% LVR you owe $500,000 and at 5% interest your yearly interest costs are $25000

    Rental Income of $52000 less Interest of $25000 = $27000 Surplus Income.

    Scenario 2:
    Rental Income = $250 per week = $13000 per year
    x4 properties = $52,000 per year in total rental income.

    If your total lending is at 90% LVR you owe $900,000 and at 5% interest your yearly interest costs are $45000

    Rental Income of $52000 less Interest of $45000 = $7000 Surplus Income.

    In scenario 1 you add on an extra $27000 income to what you take home from your other two jobs and are then taxed on that amount.

    In scenario 2 you add on an extra $7000 income to what you take home from your other two jobs and are then taxed on that amount. Keeping all other variables the same, you are better off (from a tax perspective) under scenario 2. The added benefit is you then also have an extra $400000 in your pocket to go and spend on other property or whatever else you like. Please bear in mind that if you do use this cash to buy other property it will change your tax scenario again.

    Seems like you are in an exceptionally good position. Some people may also consider paying off one of your loans completely, leaving one of your jobs and the rental return from the paid off property becomes your second income (again beware) as this will have other tax implications.

    Please note I'm not an accountant, but I have a number of very positively geared properties and am in the process of taking them to 90% to try and keep my tax return in a neutral position. Please note that the driver of doing this is not based on tax but primary to release equity to invest again, with a secondary benefit of working the numbers to keep my tax return as neutral as possible.

    Hope this helps!
     
  19. Terry_w

    Terry_w Member

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    No you cannot do this. But you can borrow to invest and if the investment results in a loss (negative gearing) this can reduce your taxable income and thereby safe you tax.
     
  20. andrewtfarr

    andrewtfarr Member

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    Hi Terry, have I got this wrong somehow? Wouldn't increasing the LVR on the loans result in higher interest which is deductible?