I was lying in bed this morning, thinking about tax…..as you do.
[biggrin]Anyway, could someone have a crack at the below scenario and tell me what the ATO would think of it….
Market rent for a house is $ 500 p.w.
Outgoings payable by the Owner are about 5K p.a. (say ~ $ 100 p.w.)What would happen if you signed tenants up for $ 400 p.w. and made them – via the Lease – responsible for paying all of the outgoings on the property.
Would you be declaring the $ 400 p.w. in your tax return, or would you also need to include the O/G’s they are paying as well ??
It’ll be 6 weeks before I have access to my accountant, so your thoughts would be appreciated.
I don’t think that you could declare the outgoings as well, if the tenants agree to the proposition. Is it not the same with a commercial lease, whereby some of the expenses are paid by the tenants?
Cheers,
I would agree you can’t double dip. Only declare the $400 you actually receive.
So where is the world is Dazzling ??
Love to hear an update.Amanda
“It is better to be inconspicuously wealthy, than to be ostentatiously poor…”Dazz
are U serious
lying in bed thinking about tax!!!!!!!!
you need some pills……..Now that concept works in the commercial world because?????
Because in the commercial world a tax deduction is available to the company renting the premises as a business expense…because they generate income, that generates employment, that generates taxes…….etc…etc….
its a tax deduction thats NOT available to a residental rentor…..
Now you might want to try it….but image the repercussions….
Another 1,000 pages added to the TAX act……
and who will we have to blame…..”Dazzling”
As it is we are struggling with the act….
your not a TAX lawyer are u?stop it…..you think to much…….
anyway every 30 seconds arn’t you suppose to think about s!!!!!
i think you’ve getting your impulses mixed up…..I think what Dazzling means is does he have to include the $100pw that the tennant pays in outgoings as income to himself ie because he has “discounted” the rent. I’m no expert but I think you could do this, the market rent is what the owner and tennant agree to do business on, how could the ato benchmark that. Not sure why you would do this because you would obviously lose the tax deductions for the outgoings.. unless he is up to something between seperate entities that he controls and wants to reduce the taxable income of one of them. The mind boggles – there could be various reasons.
regards,
Paul
dazzlings probably in the middle of nowhere..maybe even bobbing around in the ocean…and as an Investors mind is warrant to do he starts ‘scheming’
)“Money is a currency, like electricity and it requires momentum to make it Effective”
Count The Currency With This Online Positive Cashflow CalculatorIt wouldn’t make any difference – would it?
eg. The rent is $500 plus $100 rates. You have to pay tax on $400. You drop the rent to $400, no rates, so you pay tax on $400.
You would in essence be paying the rates and they would be reimbursing you. So it would work out the same.
Terryw
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that was my first thought terry, end sum seems the same.
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[email protected]BTW, I have a residential property where I make the tenants pay all outgoings. If she pays hte rates, I do not claim. If she forgets, i pay it, then claim it, she reimburses me, and I declare that as extra income.
Terryw
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Terry ,
You are right that for tax purposes the effect is the same, however I suspect there are other financial implications in this scenario.
By making the tenant pay for expenses and reducing the rental income that you recieve, you are effectively reducing your assessable income. Your assessable income is not what you pay tax on. It is simply the sum of all you income (it is not net of expenses).
Now there are various rebates etc that are determined by your assessable income. For Example the governments co-contribution scheme for Superannuation, where the threshold (currently 58k) is based on assessable income. Therefore a low income earner, that owns an investment property is better off getting the tenant to pay as much as possible to keep their assessable income below the threshold, thus becoming entitled to pro-rata co-contributions.Why is assessable income use for these schemes ? to stop people who use investment strategies such as negative gearing, being entitles to such rebates or handouts.
Dazzling, it wasn’t a silly question at all. But I suspect that your assessable income exceeds all the relavant thresholds.
Note: I am not authorised to give tax or financial advice, I could be full of sh!t, so seek advice from someone authorised to do so. Above is my interpretation of information provided by the ATO.
Mal
Getting out of your comfort zone, can help you become comfortable
Thanks everyone for your replies and thoughtful comments.
I simply tossed it up as an idea for discussion. I don’t know for sure but I’d suspect the ATO will just lump the entire lot received from the tenant and call that the assessable income, they’re not usually that stupid.
However, I can see other benefits if you do fall under some pre-determined Govt threshold for something.
I’m simply trying a few of the industrial techniques I’ve become accustomed to, and trying to apply them to my residential tenants to bring them up to scratch. I imagine most resi tenants would run a mile if you even dared mention outgoings impost. Gotta explore all the options, this game we play is just about talking to people and agreeing certain courses of actions. I reckon throw a few wobblies into the mix and see what falls out.
Good onya Terryw for sliding the O/G’s onto the tenant. Great negotiating if you didn’t compromise on the nett rental value paid.
As to where I am, definitely not bobbing on the ocean – I get woefully sea sick in the bathtub. Currently enjoying the rarefied dusty, oxygen depleted desert air up here on the rocky steppes of the Yemeni peninsula. Getting back into my Arabic lessons and mixing it up with the AK47 toting bedouins.
Masalama nus shukran. [cowboy2]
Mal,
I cannot see how it would change your assessable income.
You you get $500 rent, your income is $500 less the deductions of $100 = $400.
If you get $400, without the deductions, you assessable income is still $400.
Terryw
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Terry,
What you are describing is Taxable Income. I agree with you, that for tax purposes that there is no change.
Assessable Income however is not net of allowable deductions.Assessable income
Less Allowable Deductions
= Taxable incomeScenario 1 –
salary = $30000
Rental income = 26000 (tenant not paying expenses)Rental Expenses = 5200
Loan Expense = 15000Assessable income = 56000
Allowable deductions = 20200
Taxable income = 35800Scenario 2
salary = $30000
Rental income = 20800 (tenant paying 5200 expenses
for reduced rent)
Loan Expense = 15000Assessable income = 50800
Allowable deductions = 15000
Taxable income = 35800 (same as in 1)Both Scenarios pay the same amount of Tax
However, if a personal contribution of $1000 had been made to Superannuation.
Scenation 1 – The government will contribute $100 to the persons super.
Scenario 2- The government will contribute $360 to the persons super.I’m simply trying to highlight the fact that there are considerations beyond simply the tax implications that may be effected by passing on expenses to the tenant. Thus reducing your Assessable Income as opposed to your Taxable Income.
Note: Again I am not Qualified to give Tax or Financial Advice.
Mal
Getting out of your comfort zone, can help you become comfortable
Mal
I see where you are coming from now.
Terryw
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Hi terry
interesting how you make the tenants pay all outgoings
because according to the residential act, that would be illegalhave you found a loop hole?
RESIDENTIAL TENANCIES ACT 1987 – SECT 19
Landlord to pay council and water rates, land tax etc
19 Landlord to pay council and water rates, land tax etc(1) It is a term of every residential tenancy agreement that the landlord shall pay all rates, taxes or charges payable under any Act in connection with the residential premises (other than charges for electricity, gas, excess water and any other prescribed charges).
HB
Not sure if I found a loophole or not, but many many years ago I had advice that any lease over 5 years in length could be classed as commercial and the RTA would not apply (in Vic). This is probably wrong. If they take me to court, they may win.
Terryw
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terry
i like a man who walks on the wild side
having a naive tennant is a wonderful thing…
but say they did wake up to it one day…..
you know…those conversations around the barbie….
and you ended up being sued…would they then be reimbursed for all the money collected?
and would the court inpose any penalties?This is actually a lease option. ie I have sold them an option to purchase the property, with part of the rent going to reduce the repayments. If a court were to order me to refund the money for rates etc, then this would be added to the price they could buy the property from me for. So no big deal in this case.
Terryw
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terry
you threw that reD herring in“I have a residential property where I make the tenants pay all outgoings”
and now your backtracking
your not related to the PM are U?
dont answer that one…..
i know the answer…….I KNOW NOTHING
HB, What do you mean?
Yes, it is a residential house, and they pay all outgoings – water, council rates, buidling insurance.
I wish i could get them to pay the loan interest as well.
Terryw
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