Tax Deduction Information Is Absolute Gold To Property Investors!
Tax Deduction Information for Investors
There is something about the phrase, 'Knowledge is power', but it's the use of such knowledge that makes you wealthy.
Think about it. Other than lip service, does a bank tell you how to save money on fees? Well in the same vain, does the tax department blatantly give you all the tax deduction information to ensure that you make every claim possible on your property?
Simply no. By legislation it will be available but you don't see the treasurer or his band of fellow men ringing you up saying, "By the way I notice that you have not claimed your available depreciation for the new carpet that you put in your rental property!"
Now I am not advocating that you get inventive with deductions, far from it and quite the contrary.
However with Tax Deduction Information for Investors freely available from the tax department or from the right accountant, you can and should be legitimately 'paying less Tax'.
That should ring a bell with you as a tax payer. But here's your Warning and investment Caution... Do not invest a dollar to save a 50 cent- tax deduction, period!
Always build any investment on solid principles and let the numbers do the talking. Certainly there is even scope to move to a situation of 'paying no tax...' (This is so easy to do when you have or know of all the tax deduction information available to investors) but let's first explain what that could mean to you.
So how do you pay less tax or better still pay no tax?
Effectively the government wants a portion of your income and for the most part they get most of it from most people. However, as incentive for them to not have to provide housing for the renting community of Australia (which is ever growing), they allow you to claim deductible expenses against property that you provide for rent.
And if you invest wisely in the 'right type' of property or 'proper investment', your deductible
rental property expenses
can easily bring your portion of income that the goverment gets down to zero.
Yes that's not a misprint, ZERO! As an wage income earner, I've done it for years.
Yes that means that tax deduction information freely available from the tax department, you could or should avoid paying a large sum of your hard earn dollars to the Government.
That same large sum can then legititimately go towards funding your capitaly appreciating property asset. Yes fantastic isn't it! You can legally pay less tax, and really, when you see how the numbers work for property investors you'll kick yourself for not knowing about this tax deduction information that literally builds your wealth, earlier. And that's just part of what a
Strange to some but true to those who practice it, you can get the portion of income that you pay to the goverment down to zero.
So let's fast forward for the moment and suppose that you are now invested in the 'right property' (and that automatically means that you will pay less tax),and look at the finer points of some of this tax deduction information in more detail.
Income Tax and Deductible expenses
Initially we need an income to support ourselves and our capital growth focused investments. We all pay tax through the Pay-As-You-Go (PAYG) system. We can reduce or eliminate these tax payments and use them to our personal advantage by gearing our investments and maximizing legitimate deductible expenses. Deductible expenses are all expenses that contribute to the earning of income from the investment.
This does not include the loan principal repayments. They are simply a repayment of cash borrowed. Giving the banks their money back in little bits is not a tax-deductible expense. In any case, I have used where possible interest-only loans with no principal repayments. It is hard enough getting money from banks when you need it.
Investment is about using somebody else’s money for as long as you can, to obtain capital growth on the highest cumulative value of property that you can afford.
Once you have the lender’s money, I suggest that you don’t give any of it back at all for a very long time. Use it to accumulate capital growth!
Another positive to interest only loans is that your loan is depreciating in value due to the effects of inflation.
On the other hand, interest payments are deductible because interest is effectively the rent on the bank’s money that you are using for your investment.
Deductible expenses also include the non-cash expense of depreciation, this is very important. Depreciation is allowed at 2.5% on the cost of construction of residential buildings built on or after 15th September 1987. Fixtures and fittings have much higher and varied depreciation rates, I will explain in more detail later. (See section 3 of my book when you download it titled 'AGE'.) Or click here to gain a quick
understanding of tax deductions as a property investor
To manually calculate your weekly after tax cash flow of your investment property, you take cash deductions of loan interest and property expenses (approx 25% of gross rent) away from your gross yearly rent and then ad your non-cash deductions of building, fixtures and fittings and loan costs to this figure.
Apply your marginal rate of tax to this to obtain a tax credit and divide this by 52 weeks.
Can you see how easy it is with the right tax deduction information to pay less tax as a investor who in turn is building wealth through property?
The easy way to do this is of course is to use a Property Investment Analyses computer program.
NOTE: Such programs can provide a print out that has this tax deduction information already in it. Simply take it to your accountant for his professional advice. (Further, you should obtain complete financial advice before any property purchase).
To obtain a weekly tax credit (to effectively 'pay less tax'), you need to annually submit a form 1515 (better known as a 221D form, see section 3) to the ATO. This is best done by your accountant for a deductible fee of approximately $100.
The Australian Tax Office will subsequently forward an instruction to your employer to reduce your weekly PAYG contributions appropriately. If you are self-employed, this form reduces PAYG contributions quarterly.
This is more cash in your pocket now to minimize your weekly financial commitments.
Do you already know about this tax deduction information and are you using every bit to claim every cent that you are allowed?
You may be totally surprized at the money that all too many investors leave on the table... well with the tax department, all because they or their accountant does not know this and other tax deduction information that really, they should kow!
The non-cash deduction of depreciation thus creates cash benefits now in the form of reduced tax payments. This paradox is an important consideration when we look further into section 3 of my book,"How to Build Wealth with Property on An Average Income".
Have you currently got investment property? Are you maximising your Tax Depreciation Deductions?
Did you know that many property investors that I speak to are missing out on literally thousands of dollars in legitamate depreciation allowances on their investment properties!
These allowances refer to the running costs of your property including building and fixtures and fittings depreciation. And
no, your building does not have to be new. And yes, you can back claim for past years that you have not claimed your legal deductions!
Have you got a huge tax refund just waiting to be claimed?
If you have never had a Quantity surveyors report done on your property and you have not claimed any of the expenses below that are applicable to your property then then there is an extremely big chance that you have thousands of dollars sitting at the tax office waiting for you to claim!
How many years can you back claim your tax depreciation deductions?
If you have not been claiming or maximising your tax depreciation deductions, you can claim up to four finanacial years.
Special circumstances may apply in some cases.
How can you claim these expenses?
You need the services of a specialist Quantity Surveyor to maximise your claim. Quantity Surveyors are approved by the tax office under TR 97/25A to estimate the construction costs of your building and its fixtures and fittings. They will compile a document called a Tax Depreciation Schedule detailing their your property and appicable depreciation items and value. This document will then be used by your accountant to complete your tax return.
It should be remembered that your accountant is not an approved person to actually construct a Tax Depreciation Schedule. Your accountants legal expertise is in using the information contained to obtain legitimate tax deductions for you in your return.
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