Paying yourself for repairing your own properties

[The Wild One]

Last year I brought up a topic with my accountant about paying myself for repairs that I've done to my own properties. Quite legal was the answer !!

I started a handyman sevice two years ago, and have all the legals in place. Business name, registered for GST, insurance and so on. It had occured to me that I could paint all my properties, do some tiling and general repairs, and pay myself out of my investment loan and increase my income for the year by approxamiatly $20,000 to 25,000. The only catch is that I'll have to pay 10% GST.

Why would I do this, you may ask ?

Well, that's what's been bugging me for the last six months.

I'm increasing my LOC by 170,000 to 190,000 depending on what the property values come in at. Should know next week. I hope. (Apparently Westpac are a month behind) Anyhow buying one more property is pretty much a certainty. But buying two more may be a little bit harder because of the debt service ratio. So by paying the GST of $2000/$2500 for work carried out, could land me another property. In a way, it's like LMI, but instead of equity being low it's the income. I'll still have $40,000 odd to service the negative aspect of the new properties.

I hope I've explained the idea well enough, and welcome everyones thoughts on whether you think this is a good idea or not. As I stated earlier, the idea has been bugging me?

John.

 

[savoys]

sounds great. Didn't know you could do that . Doing the repairs yourself is also protecting your own interests by ensuring the properties are in good condition and being looked after.

 

[Rob Williams]

You might want to check that your lender will factor your business "income" into their serviceability calculations.
I had something similar going but found some lenders will not factor it in until it's been running 12 months, others not at all.
As an aside, one of the mortgage insurers has recently stopped doing negative gearing "add backs' in their serviceability calculations, effectively wiping out the gains from the rate drops.
There are many things going on out their behind the scenes, so be careful when making assumptions about DSR based on histrorical information.

 

[PrimeCommercial]

Last year I brought up a topic with my accountant about paying myself for repairs that I've done to my own properties. Quite legal was the answer !!

mmmm I think you may want to keep this to yourself and not give the tax man the opportunity to argue. Assuming that your claiming these payments to yourself as a tax deduction that is. Just be careful and maybe get a second opinion

 

[Propertunity]

I started a handyman sevice two years ago, and have all the legals in place. Business name, registered for GST, insurance and so on. It had occured to me that I could paint all my properties, do some tiling and general repairs, and pay myself out of my investment loan and increase my income for the year by approxamiatly $20,000 to 25,000. The only catch is that I'll have to pay 10% GST.

I don't think this is the only catch. Yes your business entity will have to pay GST @ 10%. PLUS won't it also have to pay the money out to you in wages - which is subject to PAYG tax or if your business entity keeps the profit as retained earnings, won't if have to pay tax on its profits at year end?

 

[Dazz]

There may be a small advantage if your marginal rate of tax is higher than the 30% company tax rate.

 

[The Wild One]

Thanks guys.

Because of my depreciation and expenses on seven ip's I haven't paid PAYG tax for about three years now. What's the saying, 'You wont get any more tax back than what you'rve paid'. Purchasing another this financial year, followed by another in september/October will make my deductions even more so.

I don't make the laws only follow them, and have never, ever, ever, gone down the road of Tax avasion. Tax Avoidance, yes ! But that's not why I got into investing, I'm a low/middle income earner, so wipeing out the PAYG wasn't difficult.

My day will come when I have to cough it all back. Probably when I sell.

The idea still bugs me, and I'll probably wont got a head with it.

 

[Perp]

I'm not seeing any advantage that you wouldn't get by just doing the repairs yourself, and reducing your property expenses (since you're not paying any PAYG). Even if you were a high enough income earner that your PAYG is at a substantially higher marginal tax rate than company tax, then presumably your time would be better spent earning more money in your primary income earning activity, rather than doing handyman jobs.

So I can't imagine how this set-up would be beneficial to anybody, yet. (But I'm not precluding the possibility that there might be an angle I'm not seeing.)

Maybe if the handyman work was done by a lower- or non-earning spouse, there would be benefits, but not if the property owner and handyman end up being the same tax entity.