Yes.
Unless the equity or increased funds are used for income producing purposes, the interest will not be claimable.
Ouch - $30K being taxed and not much deductions to off set
- Thread starter bumblegoodie
- Start date
Yes.
Unless the equity or increased funds are used for income producing purposes, the interest will not be claimable.
Increasing loans will result in higher interest. But the increase is new borrowings and the extra interest will only be deductible if the borrowed money is used for investments.
That's a silly approach? I am glad to pay my share as the more I pay means the more I have. So would you rather not pay any tax and be at a loss???
Sometimes people miss what they wish to achieve, would you invest just to make a loss, or would you rather invest into a worthwhile investment?
I wish I pay HEAPSSSSSSSSS of tax, as that would mean I would earn HEAPSSSSS!!!
Anyway, I am not an accountant so this is only advice, but some things I can think of:
1. Check if you can prepay the loans a year in advance.
2. Do any repairs on your IPs (not improvements!).
3. Salary Sacrifice into Super or pay forward concessional contributions.
4. Purchase another IP this year and pre-pay the loan a year in advance (purchase is considered at contract date rather than settlement date).
5. Any assets bought above $1000 would need to be depreciated and would be pro-rata.
6. Donate as tax deductible donation.
I suggest only your accountant can really advise as would be really familiar with your circumstances!
I don't know, but I consider earning and income a privilege not a punishment, and most of us need to understand we need the footpaths, and schools, and police, and security, etc.... I think I own part of the footpath, or the police car that drives pass part of it is owned by me, etc... I think I just shifted my mentality, or basically applied different mindset once I understood that we as a whole society could not exist if we did not contribute in some way!
Perhaps planning your financial future for the next year will help you there, so good luck!
Thanks MIW, i do agree with some of your points.
Understandably when one is working hard to make a better life for the family then looking at a massive tax bill which the government meant to utilise it usefully but hasnt. Then one will feel better to have that money in their own pocket instead of being taken away by the tax man.
of course i fully understand that if you earn more then you pay more tax but there is a substantial cost to your time on the job instead of spending time with the family.
The $1K depreciation issue isn't right.If you are an individual taxpayer (non-business) or own IPs the cap is $300 per item.
If you are in business its (ex-GST and adjusting for non-business use) $1000 pre budget and $20K per item post budget
You cant claim deductions for a property you haven't settled and own and have available for rent. You are mixing CGT rules and income tax.
Yes, you are probably right, I'm in business so for this year would be $1000K, thanks.
How does the ATO measure where those funds are spent???
Also, when you get your interest statement at the end of the year from the bank, how would you break down what is legitimate taxable interest from the original property purchase and what is additional interest that wasnt re-invested?
Self assessment. ATO doesn't measure anything. You must prove to the ATO your own calculations if audited.
You should not be increasing loans but splitting loans so each relevant portion is separated and then the interest will be clear for each part.
if you increase an existing loan you will have a mixed loan and then must apportion the interest - generally a difficult task.
Sure - so if you split loan (apologies for using the term "increased" but I meant split) do the extra repayments from your split loan become tax deductible?
If the answer is yes (so long as you use them for re-investing) how do we show this to the ato if audited? IE, for my last split loan, I took out 90k. This went straight into my offset where all my other income and spare cash go. I then used some as a deposit, and in another few months will be using more as another deposit but in the mean time there are other incomings and outgoings from that same account. Is there a standard or ato approved way to identify split loan funds that have then been used for re-investment?
Thanks guys, appreciate all this info!
If you set up a new loan split and then use the funds to invest directly from the loan account you can trace the borrowings to the investings.
But if you deposit borrowed money and put it in a savings account (offset) then you have taken a major detour. If you have put it into an account with cash then you will not be able to trace the funds to the loan even if you take funds from the offset to invest. It is mixed so at best you could only claim as small portion of the interest.
To rectify this you should use the cash in the offset to pay off the loan to $0 (the new split). You can then start again and borrow to invest directly from the loan account - use Bpay or go in and get a bank cheque if you have to.
After I consider all strategies with my clients and they come up with phrase like this I normally say to them, if your paying tax it means your making money! Without elaborate business' and structures etc it is harder to migigate tax as per your position, if you do it is most likely a timing difference, eg prepayment of expenses. Sometimes you can't have your cake and eat it too.
Hey bg. Admire your worth ethic and the consequential "first world problem" of having to pay large amounts of tax. It sux but thats the price we pay living in oz!
Just to further some previous comments i agree that you should not buy something you dont need just to save roughly 40% in your case. Unless its a very good deal to begin with. Wot do u do for a living? Maybe there are things that you could buy that you do need which you can benefit from. You mentioned laptop.. Do you have a small business with Abn? You maybe be able to upgrade equipment? You may even be able to sell of some of ur excess gear to recoup some costs
Just to further some previous comments i agree that you should not buy something you dont need just to save roughly 40% in your case. Unless its a very good deal to begin with. Wot do u do for a living? Maybe there are things that you could buy that you do need which you can benefit from. You mentioned laptop.. Do you have a small business with Abn? You maybe be able to upgrade equipment? You may even be able to sell of some of ur excess gear to recoup some costs
thanks Paul.
I work fulltime for a consulting company so there is a limit to what i can claim unless they are related to work of course.
But it seems like reading on the forum, ppl creates a business on the side with an ABN and somehow offset and deduct via their business to reduce tax.
Is this even possible?
Not really.
Not at all. That's asking for a problem. Also a business can only deduct expenses necessarily incurred in it earning its own income. Not yours. No private expenses, no expenses for third parties eg private rent, paying a spouse, a big arsee TV etc, interstate non-related travel etc and even non-business car use.
An ABN cant be applied for UNLESS there is an enterprise / business. ie You cant open a market stall flogging old wares and call it a business until it meets some other criteria. Even some apparent business ventures aren't initially a business = Amway, Bessemer, Tupperware etc. But then some non-business ventures are forced to apply for a TFN / ABN and even GST even if they aren't really an active and fully intentioned business and ignoring turnover...ie Uber.
BG.
If the company makes a profit it pays 30% tax. If it makes a loss it carries the loss. It can then distribute the profit to shareholders (who receive a franking credit for the tax paid by the company). The gross is added back to your income and you're given a credit/assessment for tax paid or owing.
If it pays you wages, you pay tax on the wages. The company claims that expense.
So yup, the company structure does its job.
If the company makes a profit it pays 30% tax. If it makes a loss it carries the loss. It can then distribute the profit to shareholders (who receive a franking credit for the tax paid by the company). The gross is added back to your income and you're given a credit/assessment for tax paid or owing.
If it pays you wages, you pay tax on the wages. The company claims that expense.
So yup, the company structure does its job.
Bg. What you could do is start a consulting company and change the way you are contracted at work? Maybe something to think about in the future. Another option is if you need or want a new car maybe look at novated leases. Alot of companies do that for their employees and it may save you some $ on running costs. Ie they are paid pre tax.
