Tax question

Hi

My father currently has 4 properties (1 PPOR and 3 IPs) paid off and is considering retiring due to recent poor health :( . If he decided to stop working and the rental returns of his investment properties netted approximately $45K per annum, how much tax will he have to pay? Would this still be considered PAYG tax?

Thanks
 
Hi

My father currently has 4 properties (1 PPOR and 3 IPs) paid off and is considering retiring due to recent poor health :( . If he decided to stop working and the rental returns of his investment properties netted approximately $45K per annum, how much tax will he have to pay? Would this still be considered PAYG tax?

Thanks

PAYG tax means Pay As you Go. It is the tax that your employer takes out. As he would be a self funded retiree, he would have to look after his own tax.

As far as the tax he has to pay is concerned, that would depend on if there is depreciation to be taken into account. I suggest he speak with an accountant.
 
In the first year of retirement he will put in his tax return stating the income from his investments. He will then have to pay tax on this amount.

As he will not be paying PAYG tax (no employer), he will then probably receive notification to pay tax quarterly (provisional tax) on the assumption that his income in the next financial year is similar. Each quarter he will receive a notice with the due date for payment.

When he does his income tax return for the next year, the amounts already paid will be deducted from the tax owing, which will mean a vastly reduced bill, or possibly a refund depending on income fluctuations.
Marg
 
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You'd hope he already has an accountant and has been paying tax on that $45k already ...

Yes he already has an accountant and been paying tax but that's with his salary. My question relates to when he stops working completely. As tax isn't either of our forte, I was trying to gather overall information rather than just one source (his current accountant).

Thanks to everyone that has replied.
 
Can the IPs be re-arranged so that the $45k income be split up amongst many people, instead of concentrating in one person?

Eg. Transfer some IPs to wife's name to achieve 50:50 income split (No stamp duty) or to transfer to a trust?

PS. What a nice problem to have, this one :)
 
The PPOR is under both their names.

I'm uncertain of the IPs though as my mum has been working only half the time since my dad started investing so I'm not sure how they've been structured but I will bring this up.
 
In the first year of retirement he will put in his tax return stating the income from his investments. He will then have to pay tax on this amount.

As he will not be paying PAYG tax (no employer), he will then probably receive notification to pay tax quarterly (provisional tax) on the assumption that his income in the next financial year is similar. Each quarter he will receive a notice with the due date for payment.

When he does his income tax return for the next year, the amounts already paid will be deducted from the tax owing, which will mean a vastly reduced bill, or possibly a refund depending on income fluctuations.
Marg

If he's making 45k pa from the investments he should be on the PAYG instalment system already...

Eitherway, annual tax bill on that income with no deductions is just over 7k pa or 16%.

If it were any more than 16% you would want to look at the tax effective options involving super.
 
As he will not be paying PAYG tax (no employer), he will then probably receive notification to pay tax quarterly (provisional tax)
I believe the term "provisional tax" was scrapped years ago, and that that quarterly payment is also called PAYG now.

Having had to pay both, I definitely prefer the latter, since provisional tax was a year in advance. If you were on the top marginal rate at the time, the year you entered the provisional tax system you effectively had to pay 100% tax on untaxed income that year (nearly 50% for the year just been and another nearly 50% in advance for the next year).

My wife is currently on annual PAYG, which is barely PAYG at all as it only needs to be paid a few months before it would have to be paid anyway.

GP
 
To work out the amount of tax your father will pay on $45,000 taxable income depends on a few factors.

a) Is your father over 65?
b) Does your father have a spouse?
c) If your father does have a spouse is his spouse over 65?
d) If your father does have a spouse, does his spouse earn any taxable income?
 
I would have suggested looking at super as a viable alternative to draw down a tax free income stream, but after last year's investment performance in the market, I'd be hesitant.

As mentioned in the post above, its hard to tell what the tax would be without having a look at the rental schedules and knowing a bit about his personal circumstances.
 
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