Just a curious question.
You start by purchasing a property for $100,000, 90% finance $10,000 deposit. You positive gear, so you make a cash on cash annual profit of say 8-10%… If you increase your loan repayments out of the tenants lease, so you pay off the loan quicker. Or you are lucky enough to sell another asset and use the capital gains to repay the loan in full.
After the loan is fully paid, and you start to really reap the benefits of cash income without having to pay a loan, for one the cash on cash % would increase dramatically and your income would be a nice bundle. Is there any tax applied to that income ? Ie do you get the bulk of the income as you now own the property or is there a catch ?
…im probably not explaining myself too well, but in summary do you get to reap the rewards at the end or do you pay the taxman.
Regards,
Arty… the one rubbing his hands together…
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]As far as I know the income that you would receive becomes part of your taxable income and depending how much you already earn would depend on how tac you have to pay.
ie. Which tax bracket your in…
Arty, hi ya. The income does become part of your tax assessable income, but imagine having enough of those rents coming in that you dont have to work anymore. Who cares about the tax, you’ve realized financial freedom. Hope this helps.
Marty
Thanks for that …. I was hoping someone would say that !…
So the trick would be to get a nice cheap house, pay it off with positive gearing, nice and quick and reap the rewards.
The more and more I read about this, the less and less I want to actually sit here and work in my daily job… which is handy as I can see this web site from work…
Thanking You,
Arty.
[]Here is a little trick to get some tax free money (and it is legal). Rather than just owning your property free and clear and letting the taxman get a chunk, why not re-mortgage. Using your example, say you pull out another $80,000 cash. This cash is tax free, because you have not sold. Now the rent you are collecting is taxable, but is written off against the interest you are paying on the loan. So now you just got $80k tax free legally.
Dan.
If you want an extraordinary life you have to be prepared to do things that ordinary people aren’t prepared to do.
Dan,
The issue to remember if doing that is the $80k is no longer tax deductible.
Ben.
What do you mean the $80k is not tax deductable, why would it be, it is income not an expense. Do you mean the interest on it is not? This is true, however if you use it in another income producing way (for example another IP) then it is.[
]Dan.
If you want an extraordinary life you have to be prepared to do things that ordinary people aren’t prepared to do.
“
Here is a little trick to get some tax free money (and it is legal). Rather than just owning your property free and clear and letting the taxman get a chunk, why not re-mortgage. Using your example, say you pull out another $80,000 cash. This cash is tax free, because you have not sold. Now the rent you are collecting is taxable, but is written off against the interest you are paying on the loan. So now you just got $80k tax free legally.”Dan,
Let me be a bit clearer, the interest on the equity you redraw ($80k) can not be used to offset your rental income as you stated above, you correctly point out that if you borrow this amount to invest in an income producing asset then it would be deductable.
ben.
Although it does not specifically offset that particular source of income, you can write it off again your overall income, and this includes the rent you are recieving. So effectively, you CAN write it off again the rent recieved.
Dan.
If you want an extraordinary life you have to be prepared to do things that ordinary people aren’t prepared to do.
>>Although it does not specifically offset that particular source of income, you can write it off again your overall income, and this includes the rent you are recieving. So effectively, you CAN write it off again the rent received.<<
You have lost me there dan. Can you explain the above with a bit more detail ?
Thanks,
Pisces133
Ok, The rent you recieve from the property is income, and gets taxed accordingly. Since you borrowed (in this case) the $80k to invest in a income producing asset, any interest you pay on that $80k is tax deductable. Assuming the interest on the loan is roughly the same as the rent recieved, they cancel each other out (tax-wise)[8D]
Dan.
If you want an extraordinary life you have to be prepared to do things that ordinary people aren’t prepared to do.
Hi all. I got the impression that Arty wanted cash to live on not reinvest.
Marty
Id like the consistant cash flow, to replace my wage. So the sooner the full cash flow goes into my pockets..not the home loan the better…
Many thanks to all that replied to this.
Regards,
Arty.
[]just a quick question, so if you use the money that you remortage from in any other way other than to rienvest, you pay tax on it?
Because a guy I used to know pulled out some money and would go on holidays with it and things can you buy do-dads without paying tax on the money ?[?]
cheers
The ATO looks at the purpose the funds were used for. If you borrowed the $80,000 for income producing purposes than it should be claimable. If you borrow the $80,000 to live on, then you wouldn’t be able to claim it (legally).
Terryw
[email protected]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
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