An investment property for as little as the cost of a cup of coffee a day?
Anyone looking at buying an investment property would have heard so called “investment property experts” advertising that they can arrange the purchase of a brand new investment property for as little as the cost of a cup of coffee a day. Whilst the “investment property experts” would like you to believe that such a small outlay is the result of their expertise it is actually a tax strategy that any property investor can use to make investing in property more affordable. If you do your due diligence properly and work with a quality accountant and an experienced finance broker you would be made aware of this as well as buying a property at the right price.
Often property investors scrimp and save throughout the year to meet the commitments (i.e. finance, maintenance, rates) of having an investment property, knowing they will get a tax refund cheque at the end of the year. For some poorly informed investors it can be 364 days of pain per year and 1 day of relief.
While some people like the idea of getting an annual tax refund, it doesn’t really make financial sense. By paying more tax than necessary, the tax office is essentially “holding” your money. Wouldn’t you rather have the money in your pocket from day one to do as you please with it? You could pay off your mortgage sooner, or maybe buy another investment property.
Well, it’s possible to get your refund as part of your regular salary payment using a feature of our Pay As You Go (PAYG) withholding system. It involves submitting what is called a PAYG variation to the Australian Taxation Office (ATO). This is basically an application telling the ATO how much of a loss you expect to make on your investments, so that you only have to pay tax on the adjusted amount.
Once approved, your employer will reduce the amount of tax withheld from your pay to reflect your anticipated deductions (such as interest payments and depreciation), which could easily add a few hundred dollars to your pay packet.
Strangely, many investors don’t know about this strategy, but is can really make a difference to your cash flow.
Talk to your accountant to find out more about a PAYG variation.