Dumb and Dumber - Tax Refund Question

[Yea'Na'Eh]

Ok so this is probably a really dumb question but I'm dumbfounded.

I have an LAQC with one property at this stage. Say my income from rent is 15000 and my expenses are 14000, the depreciation on the building at 3% is say 5000. So all in all a loss of 4000 (These amounts are not actuals)

HOW MUCH $$$ do I actually receive from IRD into my bank account?

[whitt]

The loss is used against your personal income depending on shareholding %.
EG if shareholding is 100% then your taxable income decreases by this amount. The tax refund would then depend on what tax bracket you are in.

[Dean@Massiveaction]

Rule of thumb work on a third of your loss.

[David_W]

Hi Yea'Na'Eh

Assuming you are on the 39% tax rate the actual tax refund amount that you would receive is 39% * $4,000 = $1,560. (If on 33% you would receive is $1,320).

I would recommend all salaried investors strongly consider completing an IR23BS to get their personal income tax deducted form their wages and salaries down. This means the Inland Revenue write to your employer and give them a certificate to deduct your tax at a lower rate each pay run - so you don't have to wait until the end of the income year.

If your accountant has not already told you about this - consider your options, and potentially change them!

Cheers
David

[CJ]

or if you are on under $38k, you refund will only be about 20%. Or if you are on $40k and your loss is $4k, $2k of the refund will be in the 33% bracket and $2k will be in the ~20% bracket.

If you have no other income (you are doing property fulltime), then you may get no refund. The IRD will only refund upto the amount that has already been withheld as PAYE or RWT.

You you figure out what bracket you are in, you can figure out you own rule of thumb but useing Poombas 1/3 rule is dangerous if you are on a low income.

[Yea'Na'Eh]

The lightbulb goes on!

Thanks guys, makes sense now. I just found it confusing when people talk about claiming back their expenses and as this is my first year I haven't been through the accounting process yet. And here I was thinking, cool man, I'll get like the whole 4k back!! Ahhh, the wonders of naivety!

[Dean@Massiveaction]

Yea, you'll get more sophisticated about your tax as your portfolio grows. Remember neither the rich nor the poor pay tax!!

[nzfrazer]

You're right there Poomba! I read the other day that the Rolling Stones paid 1.6% tax on their huge earnings last year, wonder what they pay their accountant?! ;-)

[Traff]

Hi guys

I filed our tax returns with our accountant 2 months ago and mentioned the IR23B he said that it wasn't worth doing as getting the money back each week just gets swallowed up, a tax refund at the end of the year was better as you could see it in one lump sum. I can understand both ways do you think my accountant is just set in his ways?

Cheers
Shazza

[essence]

Ir23bs

Hi Traff

Change your accountant!!!

If you're not already doing so, get another bank accountant for your rental income/expenditure. You can get an A/P from your wages putting the money directly into this account. That way, you're not spending it and it helps with the cashflow during the year.

[Traff]

Hi Essence

As soon as he's filed the tax returns i will look for another one. I've heard so many people say do the IR23B's and when i mentioned it to him i found his comment rather unusual. We were previously with Gilligan Rowe - they setup our structures but because we have a small portfolio we didn't want to pay their costs. Can anyone recommend a good affordable accountant for a small portfolio?

Your advice would be appreciated.
Thanks

[essence]

ir23bs

Hi Traff

This has come up before. Just type in IR23BS in the search function and it'll come up.

[Monkeyboy]

Why would an accountant think your money, via taxes, is better off in the hands of the govt and not yours. Definitely find one that works for you.

[murray-spi-investments]

Re IR23's

I have never personally used one and I get back $15 to $20k quite often. Yes yes I know that getting $400 pw and putting it in the bank is a much better option however I really like that big cheque once a year.

Obviously I inform clients of the ability to use a IR23 and they can choose if they want to use it. Most of my clients prefer getting a large lump sum rather than a small amount each pay which soon dissappears (yes I do advise them to increase their mortgge paytments by that amount)

I believe as long as you are informed of the availability of IR23's the choice is up to each investor as to weather they use it or take the lump sum refund and do something useful with it.

[Dean@Massiveaction]

I'm a little surprised at your comments Murray. A dollar now is worth MUCH MORE than a dollar in 12 months. My advice is always get your money back as you go. If you are building a neutral portfolio after tax not claiming it will cost you serious money in interest during the year.
Basic rule of the rich. Always pay yourself first and if you can get money NOW never wait.