Hey guys,
After recently reading Rich Dad, Poor Dad for the first time recently (and subsequently changing the way that I think about jobs, investing and money), I've been reading propertyinvesting.com for the last few weeks.
I remember reading on here somewhere something along the lines of "An astute property investor would never pay more than 5-10% of their income in tax" and it got me thinking – how do you achieve that?
Is it solely through depreciation on interest or can you claim on other things?
I've only just paid the deposit on my first house (PPOR, not investment) and that finishes being built around July/August. I imagine that I will begin to invest in property from October/November 2011.
Is there anything I can do to minimise my income tax now? And what should I start to do, or how should I structure my income, once I start buying investment properties?
Hi Mike,
If you have read anything from Robert Kiyosaki you should have learned the following:
– buy assets
– that produce income
– focus on cash flow
– structure your investments correctly to reduce tax and protect your assetsThe reason 'astute' property investors probably don't pay much tax is because a lot of them are so astute that they have geared themselves so negatively that their biggest expense is tax deductible interest. Add to that tax deductible depreciation and viola – you are paying bugger all tax.
I am not saying negative gearing is the root of all evil – in the short term it is not too bad and in times of strong capital growth it is an appropriate strategy. If possible try to find a way to be cash flow positive or neutral but still have your future investment properties generating a tax loss (thanks to depreciation).
You also should find a good accountant that earns their keep through the tax saving advice they can give which is appropriate for your situation.
Also ensure that your decisions are based on the quality of the investment rather than primarily on the taxation implications of the investment.
I am sure many other people on the forum can provide some general tips and direction – so keep reading and educating yourself and don't rush in to any investments – there are always bargains to be found.
Grow SMSF | Grow SMSF
https://growsmsf.com.au
Email Me | Phone MeSelf-Managed Super Fund (SMSF) Specialist Accountants
If you invest in new property and obtain a depreciation schedule you will get an immediate non cash deduction of 2.5% of the total value of the building each year for 40 years. Please note that is the building component that depreciates not the land. So say you purchase a $400,000 investment property and the building is worth $200,000, voila thats $5,000 a year. Then you have your interest holding costs that are deductable. In this climate its wise that your gearing is conservative so that your rental income less the depreciation claimed and the interest gives you at worst a small amount of negative gearing.
Be also aware that by claiming depreciation you are reducing your cost base unless you have a very sharp accountant who …..
A very wealthy Australian who has since passed on was doing this.
You can reduce tax to the rates you suggested by buying fully franked dividend paying shares on the stock exchange.
As these shares have the tax paid at 29% already
so if you were on say a 40% tax rate then you pay 11% tax
as the tax on share earnings has already been taxed at 29%.
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