Tax Margin's and FBT's

[lenovo]

We're planning to buy our first IP next year but something's bugging me all week. I have these scenarios:

1. Receiving 50K pa in salary but only 25K is taxable and 25K is fringe benefits.
2. Receiving 50K pa in salary but only 35K is taxable and 15K is fringe benefits.

Now, if I don't have any other source of income, #1 would be in the 15% tax margin while #2 would still be hanging in the 30% margin.

If I buy an IP and it is negatively geared (assuming rent is 15K pa, and interest payments & other outgoings equals 20K):

a. Would 15% still be the tax bracket for #1 after considering income from rent? (total taxable income is now 40K). Then if deductions amounting to 20K would be considered, I will be back to 20K meaning I can only claim back 15%?

b. Would 30% still be the tax bracket for #2 after considering rents & deductions? (35K + 15K - 20K = 30K)

I'm really confused about this. I hope someone can clear this up. Thanks.

 

[MattR]

Hi

Thoughts in BOLD in the QUOTE. I AM ASSUMING CURRENT TAX YEAR 2009

Now, if I don't have any other source of income, #1 would be in the 15% tax margin while #2 would still be hanging in the 30% margin. YES BUT ONLY $1,000 OF #2 IS IN THE 30% BRACKET (I.E. 35,000 - 34,000)

If I buy an IP and it is negatively geared (assuming rent is 15K pa, and interest payments & other outgoings equals 20K):

a. Would 15% still be the tax bracket for #1 after considering income from rent? (total taxable income is now 40K). Then if deductions amounting to 20K would be considered, I will be back to 20K meaning I can only claim back 15%? KIND OF, YOUR ASSESSABLE INCOME IS 4OK WITH DEDUCTIONS OF 20K RESULTING IN TAXABLE INCOME OF 20K.

b. Would 30% still be the tax bracket for #2 after considering rents & deductions? (35K + 15K - 20K = 30K) NO, AS YOUR TAXABLE INCOME IS LESS THAN 34,000 YOU ARE BACK IN THE 15& BRACKET

I'm really confused about this. I hope someone can clear this up. Thanks.

What I would also look at if I were you is the FBT packaging. FBT is at 46.5% where as ordinarily you would be in the 30% bracket. So unless you are working for the a public hospital or benevolent institution etc. it may not be worthwhile from a tax perspective to package.

 

[lenovo]

I saw this computation by Alexlee and it's the highlighted part I'm worried about:
------------------------
Ok, I’m assuming 3,165pm is interest only. Rent 25k, so 2,083. Take say 7% off management fees 1,937pm.

So per year:

Net rent 23,244
Interest -37,980
Expenses -5,000 (I’m assuming 1% expenses on a purchase price of approx $500k)
Cash loss before tax -19,736
Depreciation -20,000 (4%)
Tax loss -39,736

So you have -19,868 each, Assuming you’re on 60k each, that’s all in the 30% bracket.
Your cashflow = (-19,736 x 0.7) + (0.3 x 20,000) = -7,815.12

So you lose $150pw AFTER tax.
-------------------------

If my taxable is only 25K (or even 35K), I would have a negative CF of
Your cashflow = (-19,736 x 0.85) + (0.15 x 20,000) = -13775.6 per year!