Tax dilema

[jingo]

Hi,

A question for accountants and creative (but within the law) people!

My wife will most likely need to pay some tax back this year. Can anyone suggest how she could bring her taxable income down within the next couple of months? Her employer is very inflexible regarding salary packaging loan repayments. The only thing she can really do is salary package into super. She will do this next financial year.

Figures below: (Most IP's are in joint names - 1 is 99% in her name, but has only owned this one for 6 mths, 1 IP is in a company name).

Total earnings by June 30: $230,000
Add Her portion of rent: $42,163
Less her portion of interest: $74,500
Less her portion of property exp approx: $10,000

Taxable income: $189,163

According to the tax calculator she should pay $67,559 in tax (including the medicare levy). She has paid $56,000 to date.

(Shortfall approx $11,559)

The main possibility as I see it is for her employer to take more tax away from her over the next two months. I had thought of transfering ownership of a couple of IP's to 99% in her name - but it may be too late for this financial year, and would probably trigger stamp duty and CGT as well???

Look forward to reading your suggestions....

P.S. A large portion of my wife's pay was bonus payments and she won't earn anywhere near this amount next year!

Regards Jason.

 

[The Y-man]

You may need to get some trees......

Cheers,

The Y-man

 

[jingo]

You may need to get some trees......

Cheers,

The Y-man

Yes, I was thinking of an investment in a forest plantation, or an ostrich farm or something of the sort! lol!!

 

[allblack]

(1)Prepay next financial years interest.
(2)Ask her employer to delay the final pay or two or three for this financial year until next financial year.
(3)If you have any shares that are in her name that have made losses sell them before 30 June to crystalise the losses.
(4)Ensure you have an accountant prepare your return so you don't have to pay the tax for 12 months.
(5)Make sure you are claiming all the depreciation you can for all properties through a professionally prepared asset schedule.

 

[jingo]

(1)Prepay next financial years interest.
(2)Ask her employer to delay the final pay or two or three for this financial year until next financial year.
(3)If you have any shares that are in her name that have made losses sell them before 30 June to crystalise the losses.
(4)Ensure you have an accountant prepare your return so you don't have to pay the tax for 12 months.
(5)Make sure you are claiming all the depreciation you can for all properties through a professionally prepared asset schedule.

Thanks allblack,

They are helpful suggestions. I will be able to get another couple of depreciation schedules done. Not sure if I can pay some interest in advance - how do I arrange to do that on existing loans? I thought this facility had to be arranged when the loan was first initiated? Perhaps I am wrong??

Like the idea of delaying the tax return too!

Thanks again.

Regards Jason.

 

[wylie]

To prepay interest on existing loans, it is necessary to contact the bank (or in our case, our broker) who arranges things. You are locking in a fixed rate, so it requires fresh documents for signing. Do it quickly or you may run out of time.

 

[GreatPig]

Does she need a new laptop, PDA, or mobile phone (which she uses for work)?

If so, she could salary sacrifice one (if her employer will let her) and reduce her income a little. Those items are FBT exempt.

GP

 

[marg4000]

(2)Ask her employer to delay the final pay or two or three for this financial year until next financial year.

This is probably illegal, and would mean problems for her employer. Like any of us, the employer needs to maximise deductions such as wages/salaries. It may also affect workers compensation and superannuation.
Marg

 

[Pat]

Hi Jason,

Just adding to what others have suggested the prepaying of interest is an absolute ripper, especially when your wife's income will come down next year. Prepaying other property expenses that are mainly in your wife's name are also a way of decreasing your tax.

Any change of ownership proportions between spouses will create a Capital Gains Tax event so this may not suit you however stamp duty isn't payable between spouses.

If you lodge through a tax agent then you won't have to pay until early June 2009 so the cash saving ( approx $1000 in interest saving ) by putting this $11,600 in a LOC on your PPOR rather than asking her employer to send the money in June 2008 to the ATO would be well worth it.

 

[allblack]

(2)Ask her employer to delay the final pay or two or three for this financial year until next financial year.

This is probably illegal, and would mean problems for her employer. Like any of us, the employer needs to maximise deductions such as wages/salaries. It may also affect workers compensation and superannuation.
Marg

It's not illegal. As an employee you get taxed on income you received in the financial year. But on the other hand the employer can claim a tax deduction for the amount of wages accrued but not paid at 30 June (not including leave entitlements).

 

[Dunsborough]

prepay interest if you can as suggested but also prepay
council rates
land tax
Water and sewaerage
strata levies
repairs through a tradesman, prepay

and others i am sure

cheers

 

[jingo]

Thanks everyone,

Looking into each of the possibilities you have raised.

Seems that we can't prepay interest as our loans haven't been set up as interet in advance loans.

But will be able to prepay other holding expenses.

Thanks again,

Regards Jason.

 

[wylie]

Hi Jason.

Double check with the bank (or a broker). Our loans also were not set up like that. The bank sends out new documents which alter the loan to fixed interest for a set period. We are with westpac.

 

[Canberran]

Your wife may buy a property in ACT as the stamp duty in ACT is 100% deductable.

 

[jingo]

Hi Jason.

Double check with the bank (or a broker). Our loans also were not set up like that. The bank sends out new documents which alter the loan to fixed interest for a set period. We are with westpac.

Thanks Whylie,

I'll check this out. We have a loan with Westpac. Do you need to change the interest rate?

Regards Jason.

 

[wylie]

When we did this last time (last year) we had to chose which rate we wanted for which number of years. It was our choice, but having chosen, if we decide not to prepay this year, we lose the fixed rate and pay a $300 (I think) penalty.

You need to be very quick. I received my papers this week for prepayment happening on 26th June.

 

[jingo]

When we did this last time (last year) we had to chose which rate we wanted for which number of years. It was our choice, but having chosen, if we decide not to prepay this year, we lose the fixed rate and pay a $300 (I think) penalty.

You need to be very quick. I received my papers this week for prepayment happening on 26th June.

Thanks Wylie,

I contacted Westpac today. They are going to send out the papers and someone in the mortgage centre is going to contact me to ask me which account my funds will be taken from. Do they usually call when they say they are going to?? I may call them again tomorrow to make sure all is fine!

If this goes through it will save us loads of tax!

Thanks again,

Regards Jason.

 

[wylie]

If they haven't called by the time the papers get there, definitely call them.

They must get pretty busy this time of year with prepayment of interest documents flying out so keep on them.

 

[jingo]

If they haven't called by the time the papers get there, definitely call them.

They must get pretty busy this time of year with prepayment of interest documents flying out so keep on them.

Thanks for the tips wylie and everyone else.

I rang them yesterday morning. They processed my request straight away. Money should be taken out tonight. Didn't need to fill out any paperwork. Must say, Westpac gets a 10/10 for service! Much better than some banks I could name (but won't!).

Have managed to bring my wife's taxable income down to a level whereby she will gain a modest return. Much better than having to pay though!

Regards Jason.

 

[wylie]

Are you sure they are doing what you want? This seems TOO quick. Did you sign forms?

We are with westpac, and we had to sign forms like we were getting a new mortgage, and also the paperwork for drawing the funds out. This is happening on 26th June, so I have to make sure we have clear funds in our nominated account for that day.

If they are taking it out today, I would be wanting to make sure you are actually fixing the rate for a set period and prepaying twelve months' worth of interest. It sounds like they might just be taking a lump sum payment, and you may find you have to still meet the monthly repayments, which is not what you want at all.

Don't mean to be a worry wart, but something just doesn't sound right.