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# 141291 7-Mar-2014 13:45
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Just out of interest the companies and landlords that we hear about right .... PAYE people pay taxes automatically.  If the loan interest is lower than income taxation they could defer paying their loan in full right ...?

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  # 1000743 7-Mar-2014 13:49
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<blink> huh?



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  # 1000744 7-Mar-2014 13:52
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The landlords - if they had extra money to pay the loan faster, they could choose not to do that b/c the bank loan rate is lower percentage than income tax? The loan could be seen as an expense? Deduct that off their income therefore they pay less tax for that time being ..... Or have I got that incorrect ........

 
 
 
 


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  # 1000751 7-Mar-2014 14:01
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If your expenses are more than your rental income then tax can be deducted off your personal income. I don't think it works if your rental income is higher than expenses. That just means you're taxed personally fully, and so is the company.





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  # 1000754 7-Mar-2014 14:06
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they could use it to minimise tax? if it's paid off tax on all, so delay it pay tax on a lesser income when there are more expenses.

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  # 1000756 7-Mar-2014 14:09
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Some landlords have interest-only mortgages, so they can maximise their claimable expenses and hence minimise their tax. (Principal repayments are not tax deductable.)

 

However it may be cutting off your nose to spite your face because you also minimise your profit.




 

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  # 1000797 7-Mar-2014 14:54
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Remember though that for every dollar you pay in interest you get depending on tax rate you get 30c back So it still costs you

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  # 1000985 7-Mar-2014 19:58

Since interest on rental property mortgages is tax deductible but interest on personal property mortgages is not. It makes sense to have the rental property mortgage on "interest only" and pay as much as you can off your personal property mortgage.


As for tax deductions. Assume you earn 100K per year before tax. You have a rental property. At the end of the tax year, you had made a $10,000 loss (the expenses - mortgage interest, rates, insurance, management fees, repairs ect were $10,000 more than the rent received) Therefore you were contributing $10,000 of the money you earned from your PAYE job to keep the rental afloat. That $10K is deducted off your before tax income. So your taxable income for the year is $90K even though you still got paid $100K for the year. Assuming your top tax rate is 38% you will get a tax refund of $3800. Which sounds good until you remember that you have still paid $6200 more on rental property expenses, than what you have received in rent.



 
 
 
 




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  # 1000987 7-Mar-2014 20:05
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I thought that was disallowed from the last few years?  LAQC right or am I mistaken.  Didn't they disallowed deductions to be put to the person's day job income?

Yeah i was thinking about those 100% landlords without day jobs LOL.  Or companies who rack up expenses just to make the place more pretty like expensive computers, furniture regularly, wine, perks, a flash car.  Yeah .. landlords can rack up expenses to improve its value too huh .. but it does cost as only the tax part of it can be claimed.  Designer bathrooms, convert to open home living .. at least for a small cost compared to a avg Joe and Jane.  Then they still get access to the public services ...

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  # 1000999 7-Mar-2014 20:48
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rayonline: I thought that was disallowed from the last few years?  LAQC right or am I mistaken.  Didn't they disallowed deductions to be put to the person's day job income?

Yeah i was thinking about those 100% landlords without day jobs LOL.  Or companies who rack up expenses just to make the place more pretty like expensive computers, furniture regularly, wine, perks, a flash car.  Yeah .. landlords can rack up expenses to improve its value too huh .. but it does cost as only the tax part of it can be claimed.  Designer bathrooms, convert to open home living .. at least for a small cost compared to a avg Joe and Jane.  Then they still get access to the public services ...


OK, LAQCs are gone, however there are other company structures that offer similar abilities. Or you can simply have the rentals in your own name.
Company taxes are lower (30%) than many of the PAYE rates. However when it comes to retirement time when a lower income will see a tax rate lower than the business one. 
Capital expenditure is not always tax deductible , for example a new bathroom...probably not, a heat pump yes.
Repairs are tax deductible , however if you upgrade (e.g. flash new kitchen to replace a basic one) it may be considered capital expenditure and not be deductible.
This is where you spend on an accountant to sort all this out.


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  # 1001082 8-Mar-2014 01:10

rayonline: I thought that was disallowed from the last few years?  LAQC right or am I mistaken.  Didn't they disallowed deductions to be put to the person's day job income?

Yeah i was thinking about those 100% landlords without day jobs LOL.  Or companies who rack up expenses just to make the place more pretty like expensive computers, furniture regularly, wine, perks, a flash car.  Yeah .. landlords can rack up expenses to improve its value too huh .. but it does cost as only the tax part of it can be claimed.  Designer bathrooms, convert to open home living .. at least for a small cost compared to a avg Joe and Jane.  Then they still get access to the public services ...




They got rid of LAQCs, But at the same time they introduced LTCs (look through companies). Reason being is LAQCs allowed losses to be deducted at your (higher) personal tax rate. And profits paid at the (lower) company tax rate. With LTCs both tax on profits and deductions on losses are based on your personal tax rate.

Other things that have changed:


You used to be able to do deprecation on residential rentals. A landlord will buy a house, then get a valuer to work out the value of the appliances, carpets, building structure, wiring and plumbing ect. These things would then be deprecated by a set amount or % each year. (their value as recorded in an asset register). This amount would then be claimed as an expense. In reality it was just like getting an interest free loan from the IRD. As if the house was sold the IRD would see that it was sold for more than book value and then ask for the tax deductions back. Depreciation can mainly be done only on some industrial building now.


Working for families (and this was a biggie). Under labour's original version of working for families. The income criteria was based on your "net" income. (taxable income left after deductions). This meant that if you had lots of kids but earned too much to qualify. All you had to do was buy a rental property and run it at a loss. As well as getting the tax deductions, you now qualified for working for families. The govt was basicly saying "We will pay you to buy rental properties". Working for families is now assessed on gross income, therefore you can't do the above anymore.

Those 3 changes were done after National came to power. But weren't reported much. Since a headline "National makes rich landlords pay more tax" goes against the public perception of the national party. And I hate both national and labour before you call me politicly biased. (don't get me started on asset sales and some other national policies / decisions)


Also the landlord can do the same tax deductions regardless of if they own the rental directly, through a standard company, an LTC, or a trust. Yes there are differences between these options, but in deciding which option a landlord should use, they need to see an account and/or lawyer, to make sure they are using the best one for their situation.


And the landlords who don't have a PAYE job, who make all their income from rentals. Are operating almost exactly the same (tax wise) as someone who owns a Hotel.

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  # 1001243 8-Mar-2014 12:39
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rayonline: I thought that was disallowed from the last few years?  LAQC right or am I mistaken.  Didn't they disallowed deductions to be put to the person's day job income?

Yeah i was thinking about those 100% landlords without day jobs LOL.  Or companies who rack up expenses just to make the place more pretty like expensive computers, furniture regularly, wine, perks, a flash car.  Yeah .. landlords can rack up expenses to improve its value too huh .. but it does cost as only the tax part of it can be claimed.  Designer bathrooms, convert to open home living .. at least for a small cost compared to a avg Joe and Jane.  Then they still get access to the public services ...


Not sure what you mean, but I think you are asking whether expenses/losses of a soletrader business thats losing money can be claimed against PAYE tax of the same person?

     

  1. You would try to avoid being in that situation because you are still bleeding money unless you are sure you will get some profits from it later.
  2. Losses from self employment (whether renting out a property or other jobs) that have high expenses do give you a loss that can be offset against other income or (I think) carried forward to another year until you eventually make a profit. If your investment gets ruined in an earthquake then rebuilding would be a cost that might take a whilebefore you get back to profits.
  3. Improvements to a property or major capital expenditure ($500 or more) have to be depreciated over the asset's lifetime and cannot be claimed as an expense all in the same year they were spent. Property values may not decrease at all so thats an investment that actually becomes a capital gain instead of an expense.
  4. EDIT: And yeah, improvements to the building itself are now classed as investments (ie capital expenditure) instead of actual expenses. Their value appreciates with the property even if they wear out, because you can't actually separate them from the property without the whole project becoming another renovation to again improve the value. Since theres no capital gains tax for long term investments, you could argue its fair for improvements not to be tax deductable. Its stuff you need an accountant for.
  5. If you are doing short term renovations for a quick turnaround then you do pay capital gains tax and I imagine the whole investment cost would be offset against selling price.




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  # 1001321 8-Mar-2014 15:56
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If you are reasonably clever, you can ensure that almost all your personal expenses are met via the company.

For example I have not bought petrol out of my taxed income for almost 10 years. Sure, I pay a modest amount (at least, it is included in my tax calculations, I do not actually pay anyone per se) for private use but far less than my petrol bill would be.

I work at home so I can deduct part of the electricity, part of the mortgage, part of the repairs and so on for my office space.

The down sides of non PAYE tax are significant unless you are very good at budgeting though - we have seen IRD demands for over $40,000 in a single payment before now! Provisional tax is even worse - they expect you to pay them in advance for next year based on last year plus a percentage. So you need to pay them with money you have yet to earn...! Entirely unjust in my view.





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  # 1001993 10-Mar-2014 09:41
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Geektastic:
 Provisional tax is even worse - they expect you to pay them in advance for next year based on last year plus a percentage. So you need to pay them with money you have yet to earn...! Entirely unjust in my view.

 

No, that's not right. Provisional tax is tax paid during the year on income earned during that year (but estimated, as you say, based on last year plus a percentage, rather than actuals). Otherwise you pay it in February the following year - 10 to 22 months after you earned the income.




 

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