Get your cash now. You don’t have to wait till you’ve submitted your tax return to receive the cash returns from the depreciation on your investment property.
In a previous article we talked about how it was a smarter financial decision to have a tax depreciation schedule prepared now as opposed to later, simply because of the compounding interest factor. In other words, by having a tax depreciation schedule prepared now, you can get the cash returns from your investment property a lot earlier to earn more for you. Now that’s smart thinking.
Smarter still is the idea, you don’t have to wait to submit your tax return to benefit from a tax depreciation schedule. You can get your cash returns much sooner, and really get a head start on placing those dollars to work, giving you more dollars now instead of waiting till the end of the financial year.
How? I hear you asking.
Ok, I’ll let you know the secret strategy, but let me just go over some of the benefits you can get from using this simple method.
Having money now allows you to save on interest costs by paying the mortgage off faster, save more quickly for an investment property deposit, go on a holiday and so much more. I’m sure you can come up with hundreds of possibilities on how you can use that cash now. So why wait?
You don’t have to, but the strange thing is, literally hundreds of thousands of investors overlook this simple strategy. I’m not a hundred percent sure why that is, but given that the majority of property investors work; it’s a strategy you definitely need to employ as a smart investor.
OK here’s the big reveal, but if you find yourself saying, “Is that all?” ask yourself first of all am I doing it? Secondly, have I seriously looked into it? Drum roll please…
The Australian Tax Office will give you the cash returns on your investment property a lot sooner and all you have to do is to ask. Yes that’s it, ask. It’s done through the ATO’s PAYG system.
Have you considered a PAYG variation to increase your cash flow now?
While there is estimated to be 1,200,000 property investors in Australia, currently fewer than 1% of Australian property investors are using the pay as you go (PAYG) system, which generates higher cash flow throughout the financial year.
Often overlooked by property investors, the PAYG system is a great way to increase fortnightly cash flow throughout the year. The system gives the option of claiming tax back regularly, rather than in one lump sum at the end of the financial year. A PAYG variation means that the property owner’s employer will reduce the amount of tax withheld to reflect set deductions like depreciation on a rental property. In essence, it is a way of decreasing the amount of tax paid by the investor each pay period.
There are lots of deductions that the PAYG variation will take into account including interest, rates, management fees, maintenance and depreciation. A Quantity Surveyor can provide all current and future depreciation values for investment properties in a detailed tax depreciation schedule. Obtaining the schedule immediately after the purchase of a property will allow the maximum return from a PAYG variation, as the precise figures will help to make the instalments accurate.
The flexibility provided to you through a PAYG variation, combined with depreciation deductions identified by a Quantity Surveyor, can be of great help in managing the fortnightly cash flow of your investment property.
Let’s consider a hypothetical situation:
A typical $400,000 investment property over the first five years would show average annual expenses (or deductions) of $35,000 and an average annual income of $20,000.
The deductions include costs such as interest on a $350,000 mortgage, management fees, maintenance and property depreciation. The total loss (income minus expenses) will result in a deduction for the owner of $15,000. In the 37% marginal rate (a salary between $80,000 and $180,000 per year) the $15,000 deduction could generate a tax return (or credit) of $5,550.
Under a PAYG variation, the investment property owner can adjust his fortnightly pay to anticipate this return, adding $213 to his pay packet each fortnight.
So, if you haven’t considered a PAYG variation, maybe it’s time you did. It’s simple and effective, but often overlooked. Invest smarter and find out how a PAYG variation can help you.
To find out more about a PAYG variation, talk to your Accountant or the Australian Taxation Office. To find out how a BMT Tax Depreciation Schedule can help put more money into your pocket with a PAYG variation contact us on 1300 728 726 or click here to chat with us.