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Own an investment property?
Planning to buy an investment property?
Not sure how negative gearing works and how it can benefit you?
Then you must read this.
Negative gearing means that the interest you are paying on the investment loan is more than the income. As a result you are making a loss.
The Positives of Negative Gearing
So, if negative gearing means that you’re making a loss, how can that be positive?
Nobody wants to get into property investment to lose money. Even though most properties you buy will be negatively geared i.e. rental income is less than the interest repayments, the real benefit comes from the capital growth i.e. increased value of the property.
Negative gearing can work if the money you make from the capital growth is greater than the loss you make in rental shortfall. And with negative gearing, you will still reap the benefits of tax reduction by offsetting negative gearing amount against your other income.
Example
John pays $20,000 in interest plus $5,000 for council rates, water rates and landlord insurance bringing his total cash expenses to $25,000. Assuming his rental income is $22,000, he is making a cash loss of $3,000 i.e. $25,000 – $22,000. And if we add property depreciation (non-cash expense) of $5,000 to the negative gearing amount, then total negative gearing amount comes to $8,000. This amount can be used to offset other income and subsequently reduce tax.
Assuming John’s income from salary is $60,000, he falls in marginal tax bracket of 34.5% including Medicare Levy. Offsetting $8,000 against his salary will bring down his taxable income to $52,000 and he pays tax on $52,000. Therefore, he ends up reducing tax liability by $2,760 i.e. $8,000 x 34.5%
If we further apply this tax savings to negative cash flow amount of $3,000, he is out of pocket by only $240 i.e. $3000 (negative cash flow) – $2,760 (tax savings) for the entire year. Therefore, he incurs only $20 per month out of pocket to hold this property and at the same time if property witnesses capital growth that’s an added bonus for John.
For assistance contact Expert Tax on 0449 952 855 or please send us your query via our website – www.expert-tax.com.au
You can also email us your query at info@expert-tax.com.au , we will endeavor to reply as soon as possible.

 

 

Made a mistake on your tax return?

 

If you have made a mistake or need to amend your tax return, it is important you lodge an amendment as soon as you’ve realized the error made on your original return.

 

It is important to note that time limits apply for lodgment of amendments. The law sets time limits for amending your tax assessment.

 

For individuals and small businesses the time limit is generally two years, and for other taxpayers four years, from the day after ATO has issued you the notice of assessment for the year in question (generally taken to be the date on the notice or, if ATO doesn’t issue a notice, the date the relevant return was lodged).

 

For example, you’re a sole trader and receive a notice of assessment dated 8th December 2015. Your two-year amendment period starts on 9th December 2015 (the day after the date on the notice) and ends two years later, on 8th December 2017, so you have until that day to lodge a request for an amendment to that assessment.

 

You can submit more than one amendment request within an amendment period.

 

The time limit gives you certainty about your tax affairs because it means ATO can’t amend your tax assessment after the time limit has passed (except in some exceptional situations such as tax evasion or fraud).

 

If you want to amend a tax return after the time limit has passed, you may be able to lodge an objection. While the time limit for lodging amendments and objections is the same, you can request an extension of time to lodge an objection in some circumstances.

 

For assistance please contact Expert Tax on 0449 952 855 or send us your query via our website – www.expert-tax.com.au

 

You can also email your query at info@expert-tax.com.au, we will endeavor to reply to your query as soon as possible.

 

 

 

 

 

 

Tax Free Threshold

 

Is your refund smaller than last year?

 

Do you have an unexpected amount owing to ATO?

 

Why do I have to pay when tax rates have gone down and 1st $18,200 are tax free?

 

If you answered Yes to one of the above questions, you need to understand what his Tax Free Threshold and how it works.

 

What is the tax-free threshold?

 

If your total income for the year is in the lowest income or tax bracket, you pay no tax. Once you move out of the lowest bracket and into the next one, you have crossed the threshold from paying no tax to paying at least the lowest rate of tax.

 

If you are an Australian resident for tax purposes, the first $18,200 of your yearly income is not taxed. This is called the tax-free threshold. Therefore, by claiming the threshold, you reduce the amount of tax that is withheld from your pay during the year.

 

In 2015–16 the $18,200 tax-free threshold for pay as you go (PAYG) withholding purposes is equivalent to:

 

  • $350 a week
  • $700 a fortnight
  • $1,517 a month.

 

When your taxable income exceeds your tax-free threshold you pay tax on the excess.

 

Claiming tax free threshold from more than 1 employer can land you with an unexpected tax bill. When you claim tax free threshold from more than employer, technically you have claimed threshold more than once and your employer will deduct tax from your salary assuming this is your first and only job. As a result, you will be under taxed during the year. At the time of tax return, you will end up with a tax bill.

 

Example –

 

John earns $350 per week ($18,200 for the year) from employer A and also earns $350 per week ($18,200 for the year) from employer B.

 

John claims tax free threshold from both employers due to which he ends up paying no tax during the year. Under this scenario, John’s gross income for the year would be $36,400 which is above the tax free threshold. As a result, John will be taxed on income above $18,200 at his marginal rate and will have to pay tax plus 2% Medicare levy at the time lodging tax return.

 

What can I do to make sure this is not repeated next year?

 

When you start your 2nd job during the year, you are asked to complete a Tax File Number declaration form. This form allowed you to quote your tax file number (TFN), claim the tax-free threshold and provide other information that helped your payer calculate the correct amount of tax to withhold from your pay, and send to the Australian Taxation Office (ATO). Download the form here – Tax File Number Declaration Form.

 

For assistance please contact Expert Tax on 0449 952 855 or send your enquiry via our website –  www.expert-tax.com.au

 

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