PAYG Variation – How Investors Can Take Advantage Of This Policy
With rates higher than investors have seen in the past decade, our investor clients are exploring every possible way to reduce the cost of holding investment properties. Some are even making changes to their payroll so they can receive their annual tax breaks weekly—and I thought I’d share how this works with you.
It’s called a PAYG withholding variation, and essentially, it allows the annual tax refund you'd usually receive from holding an investment property to be distributed through your regular pay cycle. This helps reduce the weekly or monthly burden of holding the property.
It may be easier to explain with a case study:
Cash Flow Case Study
$41,600 – Rent per year
$55,120 – Interest expense
$8,000 – Other expenses (rates, insurance, repairs)
$21,520 – Pre-tax cash flow (negative), also known as the “cost to hold”
Using the above figures, you would need $21,520 per year (or $415 per week) to support the property while waiting for your tax return.
Depreciation (from depreciation schedule): $17,000
Cash Flow – After Tax Breaks
$41,600 – Rent per year
$55,120 – Interest expense
$8,000 – Other expenses
$17,000 – Capital works deductions (depreciation on build)
$15,023 – Tax break
$10,222 – After-tax cash flow (negative)
With this variation applied, the annual cost drops from $21,520 to $10,222, reducing the weekly figure from $415 to $197. This makes the property far more affordable to hold on a weekly or monthly basis.
We find this strategy works well for people on steady incomes, such as salary and wages. It can be a little more complex for the self-employed.
If this sounds like something you’d like to explore, your first step should be to speak with your accountant. They can help determine whether this strategy is right for you and assist in preparing the paperwork for your payroll to make the necessary adjustments.
With the new financial year fast approaching, now is a great time to have your variation in place for July 1st!
To book an appointment, please email hello@spherehomeloans.com.au
