You may have heard that a property investment is a great way to earn an income without paying
tax or without paying a lot of tax, but do you pay tax on a property investment or is
it a tax free thing or there is some loophole in the system?
I am Ryan MacLane from Onproperty.com, your daily dose of property education and inspiration.
Every single day I list a new video, podcast and article over at the website and you can
get today's episode by going to www.onproperty.com.au/154.
One of the great things about property is that in some cases the income that you earned
can be completely tax-free or you can actually get tax back on what you pay through your
employment.
I just want to throw out a big disclaimer there that I am not a tax accountant and none
of this should be considered financial advice.
Whenever you are lodging tax returns or thinking about anything personally tax-related, always
seek the advice of a professional tax accountant.
Okay, so when it comes to property investment and the question, “Do you pay tax on a property
investment?”
The answer is, it depends.
And what I mean by that is in some cases you may have to pay tax and in other cases you
may actually be eligible for a tax refund from the government.
Generally speaking, how it is worked out, is you take all the income from the property
and then you deduct the expenses that you have on the property and you also deduct the
depreciation, which is the lowering in value of items within the property or the construction
of the property itself.
This is often called an on paper loss or a phantom loss, because it is not money that
you actually pay out but it’s something that you've already purchased and the value
is just going down so you get to claim that.
So basically what you do in most circumstances is you take the income from the property,
you minus the expenses and those on paper losses to see whether you've actually made
a profit on paper or made a loss on paper.
If your expenses plus depreciation are greater than the income on the property, well that
means you've made an on paper loss and you may be eligible for a tax refund from the
government.
Obviously, this need to go through your accountant, and seek their advice.
On the flip side, if your income is greater than your expenses and the depreciation that
you can claim, well then you made a profit on paper and therefore you may be liable to
pay tax on that profit.
Depending on what you currently earn and what structure your property is set up in, that
will determine how much tax you need to pay and your account can help you out to determine
how much tax you're going to have to pay this year.
It is not going to be the same every single year, because chances are your income is going
to change each and every year and therefore the amount actually paid is probably going
to change as well.
Also if you purchased property in a structure, like a trust structure then that could affect
how much tax you pay because of all the different ways that you can funnel income down to yourself
and so forth.
If you want a tool that can help you to analyze the potential cash flow of properties, and
that can also take depreciation into account, so you can work it you're likely to get a
tax refund or you actually going to have to pay tax and how much you going to have to
pay.
In any event, the Advanced Property Calculate would be perfect for you.
The Advanced Property Calculator is a web-based tool, so you can use it on your computer,
it is also mobile responsive so you can use it on your iPhone, your Android device or
any smart phone that you may have.
So you can get easy access to cash flow now wherever you are.
So the Advanced Property Calculator is available to all On Property Plus members and you can
learn more about On Property Plus by going to www.onproperty.com.au/plus
Until tomorrow, remember that your long-term success is only achieved one day at a time.
Alright, I'll see you guys tomorrow.