The good news for many people is that the federal government has increased the tax thresholds, effective 1 July 2008, so most employees will now get a bit more in their pay packet each week.
The new thresholds are:
|
Taxable income |
Tax on this income |
|
$0 – $6,000 |
Nil |
|
$6,001 – $34,000 |
15c for each $1 over $6,000 |
|
$34,001 – $80,000 |
$4,200 plus 30c for each $1 over $34,000 |
|
$80,001 – $180,000 |
$18,000 plus 40c for each $1 over $80,000 |
|
$180,001 and over |
$58,000 plus 45c for each $1 over $180,000 |
This also means that if you can claim tax deductions that lower your income, so you move into a lower tax bracket, you can be even more effective in reducing the amount of tax you pay.
One of the most effective ways to reduce the amount of tax you pay is through negative gearing. Negative gearing most commonly occurs when you borrow money to purchase an asset (such as an investment property) and the income generated is not enough to cover the interest on the loan. This can be a very effective form of leverage, and often results in lowering taxable income.
Negative gearing does not necessarily mean negative cash flow. For example, depreciation deductions and other non-cash costs associated with an investment property can result in the property being cash flow positive, but for tax purposes, negatively geared. This can help generate a large tax return.
Depreciation means the general wear and tear of an asset over the time that you own it, for example, carpet wearing out, light fixtures needing replacement etc.
Accurate depreciation of an investment property can provide you with a lot of savings at tax time. And it is important to note that both new and old properties can attract some depreciation deductions.
There are two areas under which depreciation can be claimed:
If you want to claim depreciation costs it is VERY IMPORTANT that you get a property surveyor to prepare a depreciation report for your property. There are a number of property surveyors we use and can recommend, if you would like a referral, and we cannot emphasise enough how important a depreciation report is!
If you have not been claiming depreciation on your investment property then fear not! If you have not been claiming or maximising tax depreciation deductions, the previous two financial year's tax returns can generally be adjusted and amended.
As you prepare to lodge your 2007-08 tax return make sure you received, paid and/or filed:
Try and keep a good track of your investment property income and expenses – such as filing all items in the one folder. This will make it easier for you (and your accountant!) at tax time. And it will make it easy to see what you may have forgotten to include.
This information has been provided in conjuction with Nathan Morris, Principal, Morris Accounting.
Morris Accounting is a registered tax agent and can be contacted on 07 3105 5926 or nathan@morrisaccounting.com.