Residential investors, it’s time to unlock your pay packet and start claiming what’s yours with a tax variation due by June 30 each year. This completely legal accounting process reduces your tax during the year, thereby improving cashflow and your investment property’s holding costs.
At Smarter Property Investing, we know that strong cash flow is the leverage that can get you into that next investment sooner, growing your portfolio and giving you a strong foundation for wealth building. As such, getting your tax variation lodged is one of our not-negotiable strategies from our 7 Smarter Steps to Investment Success.
We’ve spoken to DAM Accounting Services Debbie Austin-Eames principal, who says that residential investors can claim upfront expenses against their properties, rather than waiting until the end of the financial year. They need to lodge a yearly PAYG Tax Variation Application Form via the Australian Taxation Office (ATO), which reduces their tax from their weekly, fortnightly or monthly pay for the current financial year.
At an average of $400 back each month in your pay packet, this makes a dramatic improvement to a property investors’ cash flow, who in many cases won’t have to reach into their own pockets for their property’s expenses.
Debbie says that while this process is essential, many individuals struggle to calculate the income and expenses associated with the investment property for the particular time period or ownership.
“It becomes too hard,” she says. “At DAM Accounting Services, we can produce a PAYG Variation Report which calculates these figures and can be used to complete the Rental Details section of your form.”
Who should use a Tax Variation Application Form?
The application form should be used when a person who is an employee wants to reduce their Pay As You Go (PAYG) tax for the year ending 30 June. If you are self-employed as a sole trader then you may be able to reduce your tax through the PAYG Withholding on your BAS Return. This application lasts for one financial year or for one employer. A new application is required to be made every financial year or if you change jobs. Debbie says your form must be completed correctly because if you overestimate your expenses (and receive more tax back in your wages than you are entitled to), then you may not be allowed to do the variation the following financial year and you may incur penalties. If other financial changes occur e.g. an increase in wages or a decrease in interest rates, then a new application may be required.
The tax variation process
Investors must lodge the ATO’s Tax Variation Application Form to vary the amount of tax withheld from your wages each pay period (weekly, fortnightly or monthly) by your employer. If lodged and approved by the ATO prior to 30 June, then the variation is valid for the full financial year, i.e. from 1 July 2018 to 30 June 2019. If lodged part way through the year it takes into account the amount of tax withheld from your pay to the date of the form. Once the form is received, the ATO processes it and if approved (meaning they agree with the figures quoted) they will send a letter to you and your employer letting them know to amend your tax accordingly. The sooner this is submitted to the ATO gives you more chance of the amended tax starting from the new financial year, 1 July.
Tax variation essentials
If you have outstanding tax returns or a debt owing to the ATO, then your application may not be approved. Investors must also note that any funds paid back to them via their tax variation are owed to their investment properties, not their own personal accounts. They’re certainly not available to pay for your next trip to Bali and won’t do your cash flow any favours if you succumb to temptation!
If you’d like to know more information then please call 1300 736 754 to learn what this means for your investment success.
As always, if you have any question, please leave a comment below.
Until next time,
From the desk of Christine.