I am wondering…
My husband will have an income tax problem if he does not incur some deductions. On his current income he is going to pay 34% tax. He would like to get his tax down below 30%. Is negative gearing a good idea? Comercial or residential.Gracey.
Many folks will advise you not to purchase an investment for the tax write off. They will ask why you want to spend a dollar to get 34 cents back from the ATO?
If you are looking to reduce tax via negative gearing then make sure that your priority is to find a property that will show well above average capital growth.
If you are willing to spend the money to hold it then you need to justify this with growth.
Cheers,
Simon Macks
Mortgage Broker
[email protected]
0425 228 985Comments may not be relevant to individual circumstances. If you intend making any investment, financial or taxation decision you should consult a professional adviser.
Gracey, I concur with Simon. However, if you do have ‘spare’ income, and wish to go down this route, make sure that you buy a place that would be -vely geared, but with positive cashflow. Ie make sure that there is some good depreciation in the property.
Non cash tax deductions are the BEST kind!
Cheers
Mel
I am wondering…
My husband will have an income tax problem if he does not incur some deductions. On his current income he is going to pay 34% tax. He would like to get his tax down below 30%. Is negative gearing a good idea? Comercial or residential.Gracey.
Thanks for your input. I am trying to get my head around -ve gearing. Is it not true that if someone is paying say $500.00 per week in tax, and they buy a property with 100% finance and rent it out wouldnt the short fall between rental income and costs be offset against their tax bill 100%. I think that is how it is worded in the ATO’s web site. If this is indeed the case wouldnt it be worth it? Can you set me straight?
Thanks
Gracey.Hi Gracy, I suggest you have a read of Margaret Lomas’ books. She goes through the maths quite thoroughly, and it’s easy to follow. Sure, any net loss is 100% tax deductable, which means that you get a subsidy at your marginal rate. I’m not sure how you are getting 34% tax, unless you are talking about your average overall tax. You need to be doing the sums with tax at your marginal rate, which will probably be one of 31.5%, 43.5% or 48.5% including the Medicare Levy.
Jim.Gracey,
You are half right. The loss on the property is offset against your income not your tax. So for every dollar you lose on the property you get back 31.5%, 43.5% or 48.5% depending upon your tax bracket.
Remember it is only the interest component of your loan repayment that is deductible. There are many other costs claimable including non cash expenses such as depreciation of the building and fittings.
Repairs are deductible, capital improvements not etc etc.
If you wish to pursue this path then some reading may well be in order.
Cheers,
Simon Macks
Mortgage Broker
[email protected]
0425 228 985Comments may not be relevant to individual circumstances. If you intend making any investment, financial or taxation decision you should consult a professional adviser.
Gracie
Welcome to the forum and good on you for giving it a go. Take your time to understand positive and negative cashflow property investing so that you DO make an informed decision.
Like you, my husband was paying alot of tax, in the top bracket, and we “thought” that we needed a neg geared prop … well that’s what our accountant said. So we bought a unit in January and found the forum in Feb. This whole past year has felt like a burdon paying the loan for the unit, and even more so since we have bought positive cashflow properties. Even though we receive rent on the unit we still have to fork out the short fall. And there are months that we really feel the pinch.
So it is going to go on the market in Feb 04 for two reasons, paying a lot of tax means we are earning alot of money (although we now have other tax effective structures in place) and also because it will free up a large chunk of our PPOR equity to buy more more more CF+ properties.
Oh yeah we don’t have that accountant anymore!
Cheers
Leigh K[
]Carve your own path and lead the way …
Why is it that people are so scared of paying tax? The more you pay, the more you have earned. I would be worried if I was only paying 30% tax as I would not be able to live off the nett income. I therefore pay my 50% and look for legitimate ways to reduce it legally. However, I would still rather earn $2 and pay $1 in tax, then spend $2 to get back $1 in tax. Find a good accountant!! Can your husband look at salary sacrificing or cutting his hours if he really is anti paying tax? My goal? Replace my daytime income with passive income. Therefore, for the next 4-6 years I will be paying way more than my share of tax, but after that I can put my feet up and retire on a reasonable income. I guess it depends what your long term goals are and how long your husband intends to carry on working.
Fibejebe
I am wondering…
My husband will have an income tax problem if he does not incur some deductions. On his current income he is going to pay 34% tax. He would like to get his tax down below 30%. Is negative gearing a good idea? Comercial or residential.Gracey.
Thank you for responses,
to clarify, 34%is the tax he is paying across the board on every dollar, so yes some of his income is on 48.5%. He has his own company and the idea was also for the company to rent the property off him so as to increase company costs and reduce his tax burden. We intended to do it with a comercial property because the company would also pay all tenant costs and these would be claimable as legitimate tax deductions…
Any one know if this is legal??!!Gracey
Your spot on there Fibejibe, the more you make, the more you get taxed, it is good to be taxed more, however, some non-cash deductions such as depreciation are always welcome to lower your tax bill.
Fudge111[
]Well Fudge111 and fibejibe,
I am really just looking at ways to also legally lower our tax bill. 34 cents in every dollar made is an awful lot of tax to pay. This country is one of the most highly taxed in the world, and if there are legitimate ways through depreciation or anything else you can suggest then lets hear it! I have a scenario in an earlier post any I welcome any comments.
Thanks again…
Gracey[/quote]
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