Put cash in your pocket with negatively-geared properties

Many negatively-geared property investors often find they are short of cash because rental income from their investments falls well short of the cost of owning them.

Regular Money reader Martin says he is often cash-strapped due to the demands of his properties, but he wants to continue to hold them. "They are growing in value and I am counting on them to bring in regular income when I retire in 10 years after paying them off," he says.

One thing Martin can do is access his negative gearing tax refunds throughout the year instead of waiting until he submits his annual return. It does require doing some paperwork, but can be well worth it.

Martin's regular income from his job as a marketing executive is $80,000 a year, but he estimates he loses $25,000 a year on his rental properties. This means his actual taxable income is $55,000. His PAYG tax on $80,000 amounts to $18,750 (including the Medicare levy) or $721.15 a fortnight.

If instead he had to pay tax on only $55,000, this would be $10,375 (including Medicare), or $399.04 a fortnight, and Martin would have an extra $322.11 in his pocket each fortnight.

To get this result, Martin would have to apply to the tax office for a variation to the calculation of his tax. He would need to lodge a PAYG withholding application form, ensuring he uses the correct version, as a new one is launched each financial year, usually in early May.

Lodging a paper form can take up to 56 days to process; electronic lodgement should be processed within 28 days. Your application will be processed only if you have all your required tax returns and other documentation up to date.

And if you are granted a variation, this does not mean the ATO accepts the tax treatment of income and deductions on your application. Your actual tax liability will be determined when you lodge your return.

So be careful with your assessment as there is no benefit in having extra cash in your pocket if you cop a large tax bill at the end of the year. This will also spoil your chances of future approved variations.

If you had an approved withholding variation for the previous year and received a debit assessment for the year - the ATO claimed you owed it money - your application for a new variation will not be processed.

You can apply for a review. Landlords may improve their cash position ensuring the full benefit of building and depreciation allowances. You don't need to outlay money as they accrue simply due to the ageing of your real estate assets. Some investors don't realise older properties can provide good depreciation claims. Maximise these claims by having an up-to-date depreciation schedule drawn up by a reputable quantity surveyor.

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