Tax Variation

[Tristan1]

Hi Guys,

Interested on peoples thoughts regarding Tax Variation.

The idea of accessing your entitled tax back weekly rather then waiting 12 months sounds pretty good.

For example, have a look at these figures for one year on a sample investment property.

Rental income $18,279
Interest expense $25,238
Other general expenses $3,751
Pre-tax cash flow -$10,710

So $10,710 per year, or $206 a week, is needed to support this property while you wait for your tax return. Imagine you had two or more investment properties, could you find $20,000 to $30,000 a year?

Now let?s take a look at the figures on the same property, including tax breaks.

Rental income $18,279
Interest expense $25,238
Other general expenses $3,751
Tax break (deductions) $8,141
After tax cash flow -$2,569

$2,569 per year, or $49 per week, is obviously much easier to find than $206 a week. As you can see, these tax breaks make investing in property much more affordable.


Im sure Accountants and Tax nuts will be able to add some advice on this. Pros and Cons. Do you recommend Tax Variation to clients? Why, Why Not?


Cheers

 

[pinkboy]

The general consensus is:

If you are a PAYG wage earner, with 1 to a few vanilla properties, then yes, an ITVW would be able to be closely determined and executed (just returning a small refund as buffer).

For self employed, people with complex structures, multiple income streams from multiple sources or with large portfolios, then they would generally not be advised and a normal tax return/bill would be adopted.

Decent penalty applies if you get ITVW wrong and end up with a tax bill.


pinkboy

 

[Terry_w]

The quicker you reduce your tax the greater the interest savings and compounding effects.

But some people love to get the lump sum tax refund once a year as it is a form of forced saving.s

 

[Xjas]

If you need the cash flow it has benefits but if you have a decent buffer you'd need to do the maths to work out if its worth while.
I sat down and worked it out once, can't remember the exact numbers, my tax back equated to about $10k so around 200 per week, if I was to put that 200 in offset account each week over the financial year I would save only a few hundred dollars interest, by the time I paid my accountant to set it up I would have come out not much in front. In my case it wasn't really worth the effort for around $200 considering the fines if you get it wrong.

 

[chindonly]

Really Xjas?

You don't need an accountant - use the online portal and do it yourself in less than an hour.

Just be a little conservative on numbers if you are worried about fines.

Most people wouldn't mind being paid the equivalent of a few hundred dollars for an hour's work.

 

[Paul@PFI]

Its a personal choice for a ITWV. Some love the big refund some need the cashflow.

I will say one thing. Get it 100% right. You want to include all jobs, all income and be conservative with deduction estimates . You want the PAYG Variation plus still get a refund at year end. There are penalties if you get it wrong.

I did note that there was no depreciation deduction. If you haven't already made enquiries I would do that first.

 

[Xjas]

Really Xjas?

I would need an accountant to set it up for me (various reasons) and my income is difficult to estimate accurately. If I was to be conservative enough to cover all posibilities I would have gained almost nothing.

As I said, in my case it wasn't worth the effort. That not to say for others it wouldnt be, thats just what I found when I looked into it.

 

[Rixter]

Interested on peoples thoughts regarding Tax Variation.

The idea of accessing your entitled tax back weekly rather then waiting 12 months sounds pretty good.

What ever asset class you are into, one should always be looking to maximise cash flow and minimising risks where ever possible.

As such, ITWV is a very effective tool for maximising cash flow. It has allowed us to build our portfolio faster because of it.

What we received back throughout the year covered the holding costs on additional property we otherwise would normally not have been able to purchase.

With the increased asset base and greater time exposure in the market the compounding affect across the portfolio's CG is extraordinary.

I hope this helps.

 

[melbgirl12]

I have always lodged the variation myself and never paid my accountant. To make sure I still get refund at end of year I only include my base income (never include bonus payments which I know will have big tax taken off me as buffer) and rent with no increases built in but 52 week occupancy, and underestimate my deductions for properties. So conservative interest bill with a rate cut always built in, and the land tax and rates bill and depreciations. Then I leave off all maintenance, management fees and anything else that comes up (like bank fees or post etc) to ensure come tax time I always have more deductions to bank of a few thousand.

It always works out for me that I still get a refund back come tax time by being conservative. It is an easy form to submit yourself without an accountant and the ATP provides clear instructions.

 

[Scott No Mates]

It always works out for me that I still get a refund back come tax time by being conservative. It is an easy form to submit yourself without an accountant and the ATP provides clear instructions.

Overestimate income & underestimate outgoings, two sided conservatism.

 

[Greg Reid]

I am sure someone had a view that why would they want the government to have their money any longer than necessary as they don't spend it so well.

ITV is a very good mechanism to preserve cashflow and being somewhat conservative is better than being optimistic and over claiming. As melbgirl and SNM, base it on 52 weeks rental , little maintenance, normal depreciation, management fees etc. If things are getting better during the year, such as unexpected rental increases or decreased interest, simply do another ITV at that time.

That said, if you simply blow the tax savings in additional living expenses as compared to using it to pay down a private debt with an annual refund, consider the latter.