22 Feb Getting tax benefits sooner – Brad Beer
Investors often wait until the end of the financial year to take advantage of depreciation and the other deductions they are entitled to, but there is a method which allows investors to receive their deductions more regularly. Brad Beer tells us about a Pay As You Go withholding variation.
Kevin: Investors often wait until the end of the financial year to take advantage of depreciation and the other deductions that they’re entitled to, but there is a method that allows investors to receive their deductions more regularly. This involves submitting a PAYG – pay as you go – withholding variation with the help of an accountant.
Brad Beer from BMT Tax Depreciation can explain how a PAYG withholding variation works and why including depreciation claims in this process will help you as an investor. He joins me to talk about that.
Good day, Brad. How are you doing?
Brad: Fantastic, Kevin. Yourself?
Kevin: Very well indeed, thanks, Brad. What difference can a depreciation claim, when it’s combined with submitting a PAYG withholding variation, make to an investor’s cashflow?
Brad: Kevin, it can make a fair difference because of the deductions. But let’s just step back to the PAYG withholding variation to start with. It’s actually been around since… It was introduced back in July 2000, and what it is is simply a mechanism where at the moment, what often happens is you go through the year, your employer takes some tax out of your income and holds on to it and gives it to the tax office, and at the end of the financial year or just after, we get our gross certificates, we do a tax return, and if it’s nice, we get a nice tax refund.
PAYG means that you actually work this out probably at the start of the financial year and say “Hang on, employer. I don’t want you to pay all this money to the tax office and hold on to it until I do a tax return next year.”
And with a property investor, some of the deductions, especially the depreciation deduction that’s a non-cash deduction, you’re making all these deductions and you get this big refund at the end of the year. You might as well get it earlier and put it into your offset accounts or into your things instead of letting the tax office hold on to it for the year.
Brad: And look, how much difference can it make? Your employer doesn’t know about your other tax affairs, so they take out the standard required amount of tax and they pay it to the tax office for you. But in a simple scenario where the average deduction out of the properties that we do for depreciation is about $10,000, if we just took that average number and put someone who’s on the average tax rate of 37.5%, that’s about $3700 a year in cash back in deductions. That’s about $60 or $70 a week, something like that.
So, based on only depreciation – and the other deductions as well, though, but just with the depreciation if you do a POYG on top of the other ones – it’s “Excuse me, employer. Don’t take $60 a week out of my pay packet and give it to the tax office. Just give it to me.”
Kevin: Exactly. It makes a lot more sense to me, too.
Brad, does a PAYG withholding variation negate the need to submit a tax return?
Brad: Absolutely not. All it is is you get your accountant at the start of the financial year to say “Excuse me, Mr. Employer. Stop taking all that money and giving it to the tax office. Pay me more of it.” And at the end of the financial year, you do a tax return just the way you do otherwise, and rather than getting a big tax refund, you don’t.
Sometimes, the tax refund is a good forced saving, but as a property investor, we should be a bit more prudent with our money and put it into areas and use it to work for us instead of the taxman’s pocket.
Kevin: Absolutely, and that’s what it comes down to. What advice do you recommend investors seek before they consider taking up an option like this?
Brad: A PAYG only works for a normal taxpayer, a salaried employee. The thing is what you need to do is make sure it suits you and your actual personal financial situation. Speak to your accountant. “Does it work? Should I do one of these? What will it mean? How much will it cost me to do one?” If you’re only going to get $3 a week extra, you might as well get your tax return at the end of the year.
So, look at that, crunch the numbers on what you think it should look like, get your accountant to help you. And your accountant is the person who will be able to help in that situation.
Kevin: Brilliant, mate. I can hear all those investors now rejoicing all around Australia saying “Yes, good on you, Brad. More money in my pocket. That’s what I like.”
Brad: Absolutely. And one thing you’ll need in there is obviously a depreciation estimate, but the big thing about it is it’s money in your pocket now instead of later, which is worth more and can be used to work for you instead for someone else.
Kevin: Yes, there’s some good news. Good on you, mate. Brad Beer there from BMT Tax Depreciation.
Well done, mate. Talk to you soon.
Brad: Great. Thanks, Kevin.