Investing in property is a smart move. It’s like planting a seed that grows into a big tree over time. You put your money into a house or land, and as years go by, it gets more valuable. This way, you’re not just saving money; you’re making it grow.
For many, investing in property remains a preferred strategy in building wealth and securing financial stability.
If you’re among those who is a full-time salaried employee, and have ventured into the property investment realm, there’s an important tax concept you should be familiar with: the PAYG (Pay As You Go) Withholding Variation.
It’s a mechanism in the Australian tax system that can be helpful for your cash flow management. What is it? Why consider it? And how do you apply for it?
What is PAYG Withholding Variation?
The PAYG withholding variation process empowers individuals to change the tax amount their employer deducts in each pay cycle. Significantly, this adjustment can be a boon for those who predict their tax liability at the financial year’s end will differ from what is calculated using standard withholding rates.
Additionally, there are two main types of variations: upward and downward. Specifically, an upward variation increases the tax withheld, which could be crucial if you’re expecting to owe tax at the year’s end. In contrast, a downward variation lessens the tax withheld, which can be advantageous if you’re anticipating a reduced tax liability due to deductible expenses from investment properties.
Why should a property investor consider it?
The primary reason you consider a PAYG withholding variation is to align the tax withheld from your income with your expected end-of-year tax liability.
If you are negatively geared and your tax-deductible expenses from investment properties are higher than normal, you will find it especially useful. This could lead to a large tax refund at the end of the year. Instead of waiting for a lump sum refund, a withholding variation can increase your cash flow throughout the year.
If you have a property portfolio, you will need more cash in your pocket each month to cater to various expenses required to maintain your properties, rather than waiting for the end of year amount. Choosing to apply for a PAYG Withholding Variation could be a smart move. It lets you reduce the tax taken with every paycheck, so you can use that extra money right away.
How to apply for a PAYG Withholding Variation?
You have two main options: doing it yourself or seeking professional help.
Applying on your own is a straightforward process, especially with the Australian Taxation Office’s online services. It’s cost-effective, as you avoid professional fees, and it gives you direct control over your financial affairs. Moreover, the ATO provides clear guidelines here, to support you through the process.
Professional assistance is always beneficial if you are unsure of doing it by yourself, and especially for complex cases.
It’s beneficial to lodge your application early in the financial year to realize the benefits of better cash flow right from the beginning of the year. When applying for a PAYG withholding variation, it’s important to avoid common errors such as underestimating income or overestimating deductions. This can lead to a tax bill at the end of the year.
So, how do you apply for it on ATO’s myGov portal if you are a salaried fulltime employee?
1. Log in to myGov: Access the ATO services by logging into your myGov account.
2. Navigate to the ATO Section: Once logged in, select the ATO section to manage your tax affairs.
3. Select ‘Manage PAYG withholding variation’: Look for the option to manage your PAYG withholding variation under the menu, Tax -> Manage.
4. Select Application Type and Reasons: As a salaried employee with investment properties, you Select ‘Payments made to you’, and Select ‘Real estate, that is property investment’ under Reasons.
5. Personal Details: Enter your personal details such as your tax file number (TFN), name, and address
6. Income Estimates: Provide estimates of your income for the financial year, including salary, wages, investment income, and any other sources.
7. Deduction Estimates: Estimate the investment property deductions you plan to claim.
8. Tax Offsets and Credits: Include any tax offsets or credits you are entitled to, like the low-income tax offset or private health insurance rebate.
9. Review and Submit: Before submitting, review all the information to ensure it’s accurate and complete. Once you’re satisfied with the information, submit the application.
For a detailed guide, always refer to the instructions provided by the ATO on their website. These instructions will help you avoid common errors and ensure that your application is processed smoothly.
What do you do after submitting it?
After submitting a PAYG Withholding Variation in Australia, you will have your application reviewed by the Australian Taxation Office (ATO) to ensure that all required tax returns and activity statements are lodged, and there are no outstanding debts. If you lodge online, the processing time is within 28 days.
If approved, the ATO will issue a notice to your employer. Your employer will vary your withholding rate accordingly. The varied amount or rate will apply for the remaining salary payments for the income year, or until you make another variation.
The ATO will determine your actual tax liability after lodging your tax return, regardless of the variation granted.
Making the Most of Your PAYG Withholding Variation
To maximize the benefits of a PAYG withholding variation, it’s crucial to accurately estimate your taxable income and deductible investment property expenses. This requires keeping meticulous records and possibly seeking advice from a tax professional. By doing so, you can ensure that the variation closely aligns with your actual tax liability, thereby optimizing your cash flow.
A PAYG withholding variation can be a powerful tool in managing your tax liabilities and improving your cash flow. By understanding how it works and how to apply it effectively, you can take control of your finances. Remember to consult with a tax professional to tailor the variation to your specific circumstances and to stay compliant with the ATO’s requirements.
Note: The information provided in this post is for general guidance and should not be considered as financial advice. Tax laws and regulations can change, and individual circumstances can vary. Always consult with a qualified tax advisor or the ATO for the most current information and personalized advice.