Property Investment and Possible Tax Savings

In Professional help by Jeff OsborneLeave a Comment

Over a lifetime the average wage earner pays $1 million in tax - property investment can reduce that markedly.

Property investment, through a range of deductions, can reduce tax liability by thousands of dollars a year and eye-watering amounts over an income earner's working life.

The beginning of the new financial year is a good time to think about the year ahead.

As we know, from 1 July this year, every working Australian was given a pay rise in the form of reduced taxes.

What this means specifically is that:

  • someone earning $90,000 can access $1,900 more disposable income annually • someone earning $120,000 can access $2,700 more • someone earning $180,000 can access $3,800 more • someone earning $250,000 can access $4,500 more.

Sounds reasonable doesn’t it, every cent back in our hip-pocket counts, but here’s the thing; we still pay a lot of tax.

If we break it down, it looks like this:

  • someone earning $90,000 will pay $17,788 in tax each year • someone earning $120,000 will pay $26,788 tax • someone earning $180,000 will pay $47,937 tax • someone earning $250,000 will pay $78,637 tax.

Anyone earning $100,000 per annum – just $2,000 above the average full-time wage in Australia – will pay more than $1 million in tax in their lifetime. I think you’ll agree, it’s a crazy amount.

Anyone earning $250,000 per annum will pay more than $3.5 million in tax during their lifetime.

This is because in Australia we have what’s called a tiered tax system, where taxes increase the more you earn.

So how might you reduce your tax?

Paying taxes, mortgages or rent, and then hoping there’s enough left to squirrel away for the future is not going to cut it.

The good news is there are plenty of legal ways to reduce the tax bill.

Most people think that when it comes to property investing interest on a bank loan is the biggest tax deduction investors can get.

It’s not; depreciation is, and 100 per cent of the cost of a new house can be depreciated, with the majority capable of being deducted in the first decade.

The best part is that you can use the depreciation amount as a tax deduction, even though you technically haven’t ‘paid’ for it. This is often referred to as a paper loss.

Unfortunately, 90 per cent of working Australians don’t receive a meaningful tax refund.

Goreal can help you purchase a brand new property and save thousands of dollars of tax each year!

Barbara Hutson

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