Hi
We bought a property nearly two years ago for $310.000 and getting rent $325 per week. It's in my husbands name and he doesn't pay any tax now. He claims the tax weekly as our accountant arranged it.
We are only out of pocket about $60 per week at the moment.The real estate suggested to put the rent up and they think we can even get $360 per week. We only increased the rent once for $5 more per week because we liked the tenants.
The problem is that I am not sure if we put the rent up how is this going to affect the tax now and what happens when the property becomes positively geared if we continue to put the rent up?
Is that when you sell it?I would really appreciate if someone can explain this to me, I am still a learner otherwise I won't be asking you guys
Thanks
If you can put up the rent, then do it. You will probably end up cash flow neutral where you don’t lose nor gain. Positive gearing properties are what investing is all about, making a profit and not a loss. Best to pay small tax on a profit then to claim a loss and make nothing. Having said that, if the tenants are great, then why not go half way around $345 and let the tenants understand that because they have been great, that you haven’t increased it to what its really worth $360.
cana05 wrote:Hi
The real estate suggested to put the rent up and they think we can even get $360 per week. We only increased the rent once for $5 more per week because we liked the tenants.
The problem is that I am not sure if we put the rent up how is this going to affect the tax now and what happens when the property becomes positively geared if we continue to put the rent up?
Is that when you sell it?I would really appreciate if someone can explain this to me, I am still a learner otherwise I won't be asking you guys
Thanks
It really depends on what marginal tax bracket hubby is in.
If you increase the rent by $5 per week then you need to
decrease your negative gearing loss by $5 * 52 minus real estate agent commission increase)
A whole $260 a year.
Contact your accountant and mention you may need to re-submit a tax variation form as the rent has increased by $260 a year.If you want to stay negative maybe you have some improvement that needs doing that you have to borrow money to get done.
Carpet renewal , repaint, new kitchen, an evaporative central air conditioner and heating ($8000 cost) , ect
Or maybe if you get real positive buy another investment property.P.S interest rates went up .25% on melbourne cup day that will change your calculations unless you have a fixed interest rate.
Sounds like your scared of making money??
Put the rent up as high as you can. thats what it is all about.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Hi Cana05,
The ultimate objective of property investing is to have positively geared properties. Besides, all properties will end up positively geared unless you keep increasing the mortgage. When your property becomes positively geared and you still want to be negatively geared, then it is time to invest again. Plenty of options – maybe buy another property or shares or topping up your super or any other types of investment you want.
I agree with previous response, increase the rent if you can.
Hope this helps,
coCattleya
Here to learn the ropes of property investing & share knowledge, not trying to sell anything at all.
You're making a loss so that after tax 60-70c in every dollar is still coming out of your pocket. Why are you into IPs. If it is just for tax losses do osmething else like salary sacrifice into superannuation. Once your property becomes neutral or positive you don't sell, you buy an additional property which you can put $60 a week into
As an Accountant and a fellow Investor, I suggest putting up the rent and ignoring the tax benefits.
In my opinion, a loss will be a loss!At the end of the day, a dollar in your pocket is another dollar for you to invest in before tax time!
I'd rather gain an extra $1 than save $0.30cents in tax gains. Get the drift?Only works when you have a complex tax structure and high income
Thanks everyone for your answers. I guess I will need to contact the tax man so he can resubmit the variation form.
To answer jmielle: The tenant was not happy even paying $5 extra and said that he would move in Feb, after that the Real Estate suggested that we go for $360 per week with the new tenant. So we didn't even ask him to pay that at this stage.
To duckster: If you increase the rent by $5 per week then you need to
decrease your negative gearing loss by $5 * 52 minus real estate agent commission increase)
A whole $260 a year.
Does this mean we get $260 more per year and if we want to stay negative we need to spent it basically on the house? Or put it towards super?
We are on fixed loan for another 8 years.
My next question is can my husband still claim the same depreciation for the house if it becomes positively geared?Thanks
cana05 wrote:Thanks everyone for your answers. I guess I will need to contact the tax man so he can resubmit the variation form.
To duckster: If you increase the rent by $5 per week then you need to
decrease your negative gearing loss by $5 * 52 minus real estate agent commission increase)
A whole $260 a year.
Does this mean we get $260 more per year and if we want to stay negative we need to spent it basically on the house? Or put it towards super?
We are on fixed loan for another 8 years.
My next question is can my husband still claim the same depreciation for the house if it becomes positively geared?Thanks
If hubby sticks the $260 into super in would be a voluntary contribution and would not change the positive gearing to negative gearing.
However if you (wife) are on a low income and hubby puts money into your super annuation account on your behalf you may qualify for theSuperannuation spouse contribution tax offset
http://www.ato.gov.au/individuals/content.asp?doc=/content/19144.htm
If you spend the $260 per year on an improvement via a small redraw loan via increased interest charge or on a repair or improvement that is a tax deductible expense you will be reducing your net property loss as opposed to net property income.
You need to seek financial advice from a licensed financial advisor on buying shares with borrowed money as as it is a risker method and may not suit your situation
With a higher risk factor you can borrow money from the house loan with a split loan and put in into shares that pay a dividend and be able to claim the interest of $260 a year as an expense used to earn dividend income.
might be worth discussing with your tax man/ agent as a possible method.
Hubby can claim depreciation if the house if positively geared. You just have to have tax already paid on other incomes.
You can reach a situation when you own a lot of properties were your total depreciation is greater than the amount taxable on your income. So as an example you earn $60,000 p/a but depreciation is $54,000 a year . anymore depreciation above $54,000 would be in the tax free threshold as the first $6000 earned is tax free. Also you have different tax rates in each wage bracket so tax saves reduces as depreciation reduces your taxable income to below the next previous tax scale.
If you do not increase the rent by small amounts each year your tenant gets use to no rental increases and then when you put the rent up a small amount your tenant leaves the property or abandons it (happen to me) . So it is a good idea to condition the tenant to having modest rental increases each year rather than suddenly having a massive rental hike 6 years later when you realise you need to raise the rent to get up to market rent.
Hi Cana,
You said your husband pays zero tax on his salary after completing the PAYG variation form. Is this correct?
If he is paying no tax, depending on his income, he may still pay nothing even with the $5 per week increase in rent. If the extra rent forced him into paying tax, it would only be at 15% marginal rate anyway. at most, it would cost him (15% x $260) = $39.
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