I love reading this forum and getting inspired by the amazing people on here, so I thought I would ask this tax question which has been puzzling me.
I have been using various online income tax calculators (including the ATO’s) to work out an approximation of my tax return this year, and they all seem to give around the same result so I guess they’re reasonably accurate up to a point. Out of curiosity, I decided to see what my tax return would be in the future when I’m retired and living off IP rent as my only source of income. Much to my surprise, the usual expenses such as council rates, real estate agent fees, insurance costs, etc. do not seem to affect the tax return (in terms of being deductions) if my income is below the tax-paying threshold. So can I assume that if my IPs only generate a small income (say less than $20000), I do not derive any tax benefits from expenses incurred in holding the IPs? Therefore, I have to wear the costs myself? So, if my rental income is $20000 and my holding costs are $7000, then my real income is $13000 because I don’t get any refunds from the ATO?
I guess it’s logical but I am too dumb to know for sure!
I’m not an accountant, but that’s generally how the tax system works as far as I’m aware. Your tax bill is based on your ‘taxable income’, so in this case it would be $13000. So any tax you paid on that ‘final’ $7000 is refunded, but if you’re still in the tax free threshold then there is little you’ll get back. Just like it might be now, say your income is $50000, less $7000 of expenses, any tax paid on that ‘final’ $7000 (from $43000 to $50000) is refunded.
Having said that, if you are on $20000 from income you’ll get a variety of subsidies and the pension, which I think it also taxed so you’ll have something to claim back. But again, I’m not an accountant and I’m nowhere near retired so I haven’t even look at any examples!
You can’t get a refund if you didn’t pay the tax in the first place.
Cheers
AndrewsuperAndrew | Property Analyser and Finder Tool
https://property-analyser.com.auYou are assessed on your taxabe income. That is income minus expesnes. if you end up with $20k taxable income then no tax would be payable.
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
Thanks for everybody’s answers. I guess IP holding costs eat into rental income and there’s no way around that.
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