Guys, in this country we are encouraged to minimise our taxable income as much as we can – legally.
I earn about $50K from my paid employment, and get something like $140K in rental income (Most properties are in joint names so it’s not as good as it looks). My interest bill is roughly $134K. This doesn’t include costs for the properties.
Suffice to say, I make a reasonable sized loss on my investing. Let’s call it $10K.
This reduces my ‘taxable income’ from $50K to $40K, and reduces my tax as well. Now the majority of my properties were built post 1987, so I get some healthy depreciation allowances. I haven’t done 02/03 return yet, but my 01/02 return showed a taxable income of – (yes, MINUS) $1500. 02/03 year I carry that loss forward, but will probably end up with a taxable income of MINUS $25K (at most). A lot of this is depreciation. A lot more of it is the fact that stamp duty in the ACT is tax deductible.
I know that the government will get their hands on me in several ways. Land taxes for starters. Then if I sell, there will be CGT. Also, in the future (and the whole reason I invest) I will be making a handy profit from my investing, and so will have income tax.
Am I being unfair to the rest of the taxpayers, or am I simply using the system to benefit myself in the short term, for the benefit of many more in the long term.
Of course, I will be doing as much as I can in the future to minimise my tax, but it will all be completely within the law. There’s far too many ways to make money legally than to try to rip the system off and get caught.[
]Cheers
MelHi melbear,
I don’t have any problem with minimising tax, heck I do hte best I can myself… I just wanted to see what SIS thought about paying back HECS…
Cheers
rMel, that’s all good. What I’m wondering is how sis can minimise his tax to zero taxable income! Surely, the more we earn, the more our initial taxable income is- makes sense. So you are able to reduce your income to 40k- and get back something like 5k on a tax return. But you have only reduced your income a total of 10k taxable income. As some of your IP’s are neg geared, therein lies the loss, so you get back tax.
But if sis says his poortfolio is mostly “neutrally geared” (neg gear balancing out pozz gear). There is therefore no loss, and hence, one’s income would remain one’s income, all profits and losses taken into account.
I am pretty much a dufus on figures, but most of us here have done heaps of tax returns in our lives. I’m not really into the “morality” of repayment of HECS either (believing in public education and all). But i am wondering about the mechanics of income versus tax.
kay henry
I just had my next post all ready to go, and hit Subscribe instead of post. The computer ate my reply[
]What I said though, will also answer the two questions that have come in since my last post.
I’m thinking that SIS has been investing for only the last year, and so this hurdle probably hasn’t really arisen for him.
HECS appears to be calculated similarly to Child Maintenance, where it’s based on your group certificate income, and then any rental loss you claim is added back. So I reckon SIS might well have a bill for his HECS in about 6 months (or at least, his refund will reduce).
Kay, the way to reduce your taxable income to zero, and still have money in the bank is to have lots of depreciation deductions. If you earn $50K, and rent=interest and other expenses, your ‘cash’ loss is $0. However, if it’s a new property, you might well be able to claim (in total) $15K or more in depreciation – being for building, and carpets, curtains etc. etc.
So your ‘taxable’ income is now $35K, but you really did get the benefit of the full amount. Have a couple of these properties, and bingo, your ‘taxable’ income is $0.
I also worked out how SIS caught up to my posts so quickly. He just posts his answers in multiple parts![
]Cheers
MelMel,
Thanks for your replies
Yes- newer props- post 1985- have generous depreciation allowances. But if a young man of 21 has 13 properties, they are not all mansions or new properties… Hence, I am wondering if such allowances apply.Mel- if I might make a query to you. You said some of your props are in two names. If you want to change those into your own name only, do you have to sell each other the properties? As in you and the co-owner?
kay henry
Originally posted by kay henry:
But if a young man of 21 has 13 properties, they are not all mansions or new properties… Hence, I am wondering if such allowances apply.You can still depreciate the carpets, curtains, light fittings etc. so even for older properties there could be some depreciation. Even if SIS only gets $1000 per property, that’s $13K off his income. Not bad going.
Mel- if I might make a query to you. You said some of your props are in two names. If you want to change those into your own name only, do you have to sell each other the properties? As in you and the co-owner?Heck yes.[
!] Unless it is by court order in a divorce, separation of defacto etc. I don’t fancy going to court, and recently I wanted just to sign over the properties to my (sort of ex) partner, but my research told me that stamp duty was payable, as was CGT as I would be ‘selling’ for CGT purposes. That’s why he’s a ‘sort of’ ex, cos it’s really quite messy.Cheers
Melwow, who knew, I have been ‘offset gearing’ my life for years, without knowing it had a name. Thanks sis. Being a freelance independent contractor, working from home, with several different businesses operating under the one ABN, means you can depreciate, claim a portion of your rent, travel exp, clothing and meals (for my line of work) – all the things sis mentioned – amongst other things. I guess I look pretty low-income on paper. Thanks to the ATO, that’s just the way it works if you’re self-employed. Employees and people on salary just don’t get the same tax breaks as business owners (do they?).
cheers-
MiniYes- $1000 per property. But that loss is only offset on income. So we have $4-5k expenses on a property- but also 5k income. That balances itself out. It would only be losses on all these deductions if there ewas no income- but we get rents, remember? Rents make it all fun, or we would be chicking our money into a river.
Mel, when me and my former partner had properties together and broke up, we sold them to each other. We had to sign divorce papers, believe it or not, saying we wouldn’t be reconciling. When you break up with a partner, I thought that it was an easier matter to split property. Am I wrong on this? (I can’t remember what happened when we when to the solicitor to do all that stuff, or how much it cost etc- it was all a bit distressing at the time).
kay henry
I remember when Kerry was bought in front of Bronwyn Bishop and some panel and questioned about not paying enough tax. HE said anyone that would pay u idiots one penny more then they have to is an idiot, as u guys just waste it and have no idea how to handle and control money. HE also said , he never intends to pay them one penny more then he has to. I think the panel had either 3 or 5 on it and Kerry ripped them to shreds on his own, he had no lawyers with him.
I gained alot of respect for this man at that time.
Regards Bear
Quote:Originally posted by Still in School:Here is a link,
Kerry Packer was also able to avoid paying any tax, actually he did not pay a single dollar to the tax man on a profit of $1.25 billion dollars.
HECS- I hate this subject, as a sole parent I couldnt afford to pay it off and get a sizeable discount, and when I went into business I had to pay it off with interest as my income increased.
It is not immoral to do what is necessary financially, within the bounds of the law or the powerful ATO.
I work with peoples incomes, trust me, there are many people out there living the life of Riley and paying no tax – legitimately
It is like the rule: 80/20, can be applied to many things, from 80% listening to 20% talking (for counsellors), or like those that earn the highest wealth, pay the least tax etc etc, or that 80% pay tax the rest dont, please yourself….
cheers
elves
Richmond I don’t know exactly how it works on the dole, but I am currently on a careers pension and I can invest in as many properties I like as long as the total of what I owe is no more then about 120k outright. Meaning I can say own 12 properties that I have 10k of my own money in. The debt is not included. I plan on using this to get off the pension. Once I have enough properties then I will sell some pay back as much debt as I can and go off the pension but. I know some will poo poo this idea, but its the only way I can see myself ever getting off it with my circumstances. I have spoken to c/link about it, and infact it was with talking to them we made the plan together. SO no im not rorting the system just using it to my advantage to get off the system. Win/Win for all concerned. Once I get off system one less person they need to be paying.
Regards Bear
whether i am just repeating what has been said, i think where some of the confusion might be in the whole +cf and -cf saga, is that one person is thinking cashflow in terms of after depreciation and deductions and the other (SIS) is talking about rent versus interest, before expenses and depreciation, this is how i understood what he said.
and hey, if you can legally reduce your tax to 0, then there is nothing wrong with that. ideally, while we are setting up investment portfolios, wouldn’t that be everybodies ideal situation, all their income paying off there debts until you are taxed for MAKING MONEY.
what a shame. making money……. []Kay buy a business and buy stuff for it, computer, fax machine, cars, stationary, food whatever and claim it all[^]. Preferrably a business where you have to travel to exotic locations to drum up business!.
Or buy properties in other countries states where you want to holiday and claim it all as expenses.[:o)]
I may sound like a pennypincher but the fact is I have properties in Rocky and Bundy and have gone there numerous times only to forget to keep reciepts and not claim a cent of what I`m entitled to!.
I really don`t have a head for business and I`m sure there are many ways I could have saved on tax in the past but haven`t.
Think laterally, what do you spend your after tax dollars on and find a way to claim some/all of it, whether it be expensive clothes/dining out whatever, I`m sure that`s how Packer swings it.
You can also prepay interest on property investments but make sure your lender gives you a discount for doing it or it is seen as tax avoidance, I know this is fact but can`t explain it further as I haven`t fully looked into it yet.SIS, I don’t particularly agree with the intent to delay the payment of the HECS debt as in the mean time I and every other tax payer is supporting you.
Unfortunately for you life (and the government) has a way of catching up with you. You may or may not be aware but and depreciation on the property is added back for GCT purposes so that any deduction you gain today, in todays dollars and at a lower tax %, you will pay back in future dollars at a higher (based on increased income) tax %.
Your case in delaying the payment of HECS hinges
“Your HECS repayment income is:
* your taxable income for an income year1; plus
* any amounts your taxable income has been reduced by a net rental loss; plus
* your total reportable fringe benefits amounts shown on your Pay As You Go (PAYG) Payment Summary.”
on the wording “reduced by a net rental loss” which is just a word play and could mean straight $’s and completely disallow depreciation. If the ATO’s interpretation is as per the family allowance add back then you will find that you are liable to pay the HECS now.
Kay Henry – I would suggest that you go and have a chat to your accountant and have him explain non financial deductions.
Cheers
Reducing the tax you pay legally is fine, but that doesn’t really impact your HECS repayment requirements. Nuetral gearing is great, but it won’t really impact your mandatory repayments as you add rental income AND rental losses.
I speak from experience having a PELS debt, +ve geared props, -ve geared props, neutral props, and FBT amounts. My repayments were not reduced even though my final taxable income was reduced. The ATO just takes more out of your potential refund or hits you with a bill if your refund doesn’t cover it.
Hi ziz,
first up, i wana say i like your forum alias nickname. (ziz… sis… [^])
With the properties that have depreciation, that is very true that ill have to pay them back when i make a capital gains profit. though the thing is, i have no intentions, in selling those properties, as with a capital gain, you can just refinance your loan or use the new existing equity in purchasing more properties, this way, im still able to avoid selling but also never having to pay capital gains ever, as long as i dont sell.
but i do agree, if i was to sell, yes i would be hit up for paying capital gains tax and plus the depreciation that was used to defer taxable income earned.
Cheers,
sisThough, i forgot to mention, if i was to sell, i would instead sell a property that had no depreciation claimable, but would also get the property re-evaluated, before it gets rented out again, to again further the amount of capital gains tax. (though this thing i mentioned, is another whole story on minimisng capital gains tax)
Thanks for your reply Anubis,
If i do have to pay HECS today or later down the track, i will pay it back, but i will try to defer it as long as i can, the longer i can defer it, the easier but lesser affect it will have, than if i were to pay for it now. (at what todays dollars and earnings are)
even if this also means if it influctuates with the CPI each year, over time, the debt will still be relatively small, rather than having to pay for it as quick as possible from day one. which would or hinder, my or the persons pay packet and earnings.
Cheers,
sisWell SIS, this whole discussion has become too much for me to further participate in, what with the inaccurate syntax and the misuse of terms like CF+ and CF-, and you trying to explain simple terms to me as if I am a child, etc. You may be thinking that you are ripping the system off (which is what the tone of your posts suggests) but if and when the ATO do audit you, I suggest that you will not be such a happy fella.
I dont have a problem with people minimising tax but I do have a problem with people knowingly claiming deductions that are inflated or not valid (i.e. holidaying in your IP and claiming 100% of the expenses as an inspection). This is why the tax rates are so high in the country.I’m out of here[
]Houses! Don’t be like that! I really enjoy youtr contribution, so don’t tantrum if you see something you don’t like!
I did ask sis these questions, and he has explained his answers. I take responsibility for asking the Q’s and I’m not hugely literate in some areas as it related to property, and probably need things explained fairly simply.
On a discussion board, we have all kinds of people. If we had a hissy fit every time we saw something written that we disagreed with, felt offended by, or had concerns about the tone, we’d be huffing and puffing all day! Stay with us, Houses, and either discuss or ignore
kay henry
Hi HousesOnly,
first up, i think you should speak to your accountant, as there are 100’s of deductions you can claim, and im going to list as many of them as i can in my next post.
Many of you are going to whinge and claim, that its a whole lot of bull of what im going to list, then talk to your accountant, your accontant will be able to a justify everything i said and going to mention.
The deductions, that can be claimed and presented, can be claimed against an individual, even if they are working FT, PT or casual, even if their properties are an investment vechile for them, or even if property investing is there business.
Cheers,
sis
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