What is a PAY Tax Variation
Put simply, a PAYG Tax Variation is available to property investors as a way of improving cash-flow to assist in paying the expenses incurred through owning an investment property.
By completing a PAYG tax variation, the investment property owner’s employer will reduce the amount of tax withheld from the property owner’s pay to reflect set deductions like interest, rates and depreciation on a rental property. In essence it is a way of decreasing the amount of tax paid by the investor each pay period.
Essentially, a Tax Variation means you receive your tax refund every pay cycle, rather than in one lump sum at the end of the financial year.
In our view, every property investor should consider a PAYG variation. While often overlooked by investors, the PAYG system is a great way to increase fortnightly cashflow throughout the year which in turn enables you to put those extra funds to use in achieving your financial goals.
What could you do with extra cash each fortnight? Our recommended option is to use it to save on interest costs by paying your current mortgage off faster. It is also a way you can fast-track savings for your next investment property deposit, or even go on a holiday. There are so many possibilities, but the main thing is that you get to decide how you make that money work for you.
A PAYG variation means that the property owner’s employer will reduce the amount of tax withheld to reflect set deductions like interest, rates and depreciation on a rental property. In essence it is a way of decreasing the amount of tax paid by the investor each pay period.
It is important to note that submitting the PAYG variation does not replace a normal tax return. A tax return still needs to be filed at the end of the year to calculate the actual amount of tax liability. Your PAYG instalments for the year are credited against your assessment. For this reason, we recommend being conservative in your estimated deductions to avoid receiving a tax bill at the end of the year.
To accurately determine the depreciation values to be used in your PAYG Variation, we recommend the services of a quantity surveyor. A quantity surveyor can provide all current and future depreciation values for investment properties in a detailed tax depreciation schedule, and the schedule does not need to be completed every year – one schedule will contain depreciation for the entire useful life of the building, fixtures and fittings. Obtaining the report immediately after the purchase of a property will allow the maximum return from a PAYG variation, as the precise figures will make the instalments accurate.
The flexibility provided to the Investor through a PAYG variation, combined with depreciation deductions identified by a quantity surveyor, can be of great help in managing the fortnightly cashflow of an investment property. If you are an Investor and you don’t have either of these in place, we strongly recommend you look into them. Your accountant can help you put the PAYG Variation in place.
If you’d like more information about how a PAYG Tax Variation or a depreciation schedule may benefit you, don’t hesitate to contact us.