Who pays next to nothing in tax?

[Georges]

Hi guys,

after reading this thread, i still dont understand, how to pay $0 (or at least less that what u are paying) tax, without having to heavily negative gear and live on 1 banana a day???

I make like 110k per year(PAYG), have 2 neutral geared properties (1 in my name, 1 in hybrid trust). Currently to reduce my tax I pay interest to Macquaire Bank for their Capital protected 100% loan funds. But paying the interest every month gives me little to spend myself.

Any suggestions??

 

[Pushka]

I never quite get the obsession with reducing the tax bill.

I think it is because people just don't like paying taxes! Nothing more complex than that!

 

[RPI]

PAYE is definetly harder but last time I was earning that way I had 13 places so that helped and the depreciation schedules do make a big difference. Also I was only earning 30-40 K andm y wife less than 20k so that helped keep it all down.

 

[asdf]

No wonder our brightest and best head overseas. Who wants their hard earned income stolen to subsidize those who earn less.

You cannot seriously begrudge them for using their intelligence to rectify this injustice and minimize their tax.

And the government wonders why we have a professional skills shortage. I would bet the guys pulling in seven figures overseas probably all still have a HECS debt. Australia breeds and trains very smart people but the government sure has no idea about how to treat or keep them.

You can't blame stupidity though cos if the people running the government had any brains, they themselves would be overseas or long poached by the private sector. Apart from the about-to-retire odd baby boomer, a Rhode Scholar you will not find amongst today's government officials.

 

[Seaview]

Georges,

We lived on bananas for 20 years because we paid top tax bracket with no deductions. We were pretty clueless about deductions then, but have made up for it since we discovered negative gearing. We have quite a few old properties now which still give us good depreciation deductions, and are neutrally geared after tax. We also capitalize margin loan interest on some income producing managed funds. This also gives us good deductions plus some nice cashflow. We are down to zero tax this year and don't feel guilty at all as they got enough tax out of us over those 20 years to last a whole lifetime.

In your situation, apart from putting more into super etc. perhaps you could find a tiny bit of equity for a 5% deposit on a brand new (or almost new) modestly priced IP, which would give you lots of deductions for the next few years.... and it is a buyers market.

One of the banks has a 95% loan which avoids mortgage insurance by having someone eg. parents go guarantor for just 20% of the loan.

Of course, if you are currently living on bananas, this IP would need to be at least neutral after tax to protect your cashflow. A superb way to do this, although requiring a bigger outlay, is to build budget duplexes, giving you more rent to cover holding costs, plus huge depreciation deductions, plus it often gives you some instant equity once completed, which you can borrow against for a deposit on the next project. Of course, in this market due diligence is required, especially being careful not to overcapitalize. If deposit is not very big, then maybe just buy a unit in a reasonable growth area to start, hopefully at a big discount.

We thought about the Macquarie products but could not bear to part with our cashflow to subsidize the interest. Thankfully we had enough equity to borrow against for managed funds plus a margin loan. Depending on our margin loan LVR, we can even draw down funds from that sometimes (like a LOC) to pay interest on the bank loans used to buy the managed funds....so cashflow is preserved. This setup is much more flexible than Macquarie, but must be managed carefully to keep LVRs down. However if we did not have any equity, we would have probably started out with Macquarie.

Cheers
Seaview

 

[sailor]

This is your conscience speaking - where would we be if everyone ended up not paying taxes? Hospitals, roads, schools etc? The money needs to come from somewhere.

I remember when all QLD hospitals were funded by the Casket...and not at all reliant on the Govt of the day.

 

[LynnH]

Not only did Golden Casket fund the hospitals, sailor, but the whole system actually WORKED! Queensland had a hospital system that was the envy of other states. In the late 1960s, my sister had scoliosis and was in hospital in Brisbane (we lived in Innisfail at the time) for 11-and-a-half months and in plaster from her neck to her knees. The only medical bills my parents received were for her first visit to the specialist upon diagnosis - everything else was free.

Then along came Whitlam and later Medibank ..... and look at the sorry state of the hospitals here today! My daughter is now a doctor in the public hospital system and some of the things she has told us leave me shaking my head in disbelief.

Cheers
LynnH

 

[sailor]

Yes LynnH....worked heaps better...shorter waiting lists...no ramping at the ER...no 9-year wait for free dental...twas excellent.

Would be great if we could go back to that system.