Exploring the Pros of PAYG Variation for Negatively Geared Rental Properties
Do you own a rental property that's currently negatively geared? Have interest rate increases had a significant impact on your current cashflow. If yes, then you might want to pay close attention to a strategy that could potentially improve your cash flow and provide some much-needed relief. We're talking about the Pay As You Go (PAYG) Variation, a tool that allows you to optimise your tax position and make the most out of your investment.
A Quick Recap of Negative Gearing
Before we dig into the details of a PAYG Variation, a refresh on negative gearing as a strategy. Negative gearing is an investment approach where the costs associated with owning a rental property, such as loan interest, maintenance expenses, and property management fees, outweigh the rental income generated. This results in an annual loss that can be applied to offset your overall taxable income, potentially leading to a reduction in your tax liability or a greater tax refund.
Unveiling PAYG Variation's Potential
A PAYG Variation is a mechanism that allows you to adjust the amount of tax withheld from your regular paycheck, taking into consideration the projected losses from your negatively geared rental property. This dynamic strategy essentially lets you tap into the tax advantages of negative gearing throughout the year, rather than waiting to claim them when you file your tax return in July of the following year.
The Upside of It All
The key benefits associated with considering a PAYG Variation for your negatively geared rental property:
Enhanced Cash Flow: Arguably the most immediate positive of PAYG Variation is the positive impact it can have on your cash flow. By reducing the amount of tax that's taken out of your regular income, you'll have a more comfortable financial cushion to manage the ongoing expenses related to your rental property week to week or month to month depending on your pay cycle.
Reduced Dependency on Tax Refunds: With the traditional approach, investors often had to wait for their annual tax refund to recoup the benefits of negative gearing. PAYG Variation flips the script, allowing you to access these advantages more evenly throughout the year. This steadier influx of funds can make it easier to stay on top of your financial commitments.
Smarter Budgeting: The consistent cash flow facilitated by PAYG Variation lends itself to more informed budgeting. This predictability can help you better manage your rental property expenses and projected losses, leading to more strategic financial planning.
Tailored Strategy: PAYG Variation isn't a one-size-fits-all approach. Collaborating with an accountant can help you tailor this strategy to align with your unique financial landscape, ensuring you're making the most of the benefits while staying within legal bounds.
Charting Your Course
At Salt our philosophy has always been that financial planning and tax advice services should work hand in hand and we can therefore provide personalised guidance on whether PAYG Variation is a prudent choice for your negatively geared rental property. Remember, when it comes to financial matters, an informed decision is often the best decision. September and October are typically the best months to implement a PAYG variation to maximise cash flow, please email us today to book in an obligation free consultation.
In closing, the potential benefits of PAYG Variation offer a compelling case for property investors with negatively geared rental properties. By embracing this strategy, you could find yourself navigating the complex world of property investment with a bit more ease and financial flexibility.