Hello Everyone,
I tried looking up but most of the discussions are about paying off mortgage vs making extra contributions into Super. I am trying to compare paying extra into investment property loan Vs Making extra concessional contributions into Super.
Assuming tax rate of 30% on salary, age mid 30s and negatively geared investment property. Even after making extra contributions into loan the property will still be negatively geared for another 5 years.
Please share your thoughts.
This is the right answer!
I still don't understand why Australians want to negatively gear. Accept a lower capital value and higher yields is way better.
In the UK the bank won't give you a loan unless rent is 145% of P&I mortgage payments (to make sure you can pay it off and continue to maintain the property up to regulations).
But I guess long as you see other hamsters running on the wheel you think must be on the right track. Even if you win, still a hamster.
Accept a lower capital value and higher yields is way better.
Depends on what the capital gains are.
Theory but if you did the sums.
You negatively gear to offset against income at 30% when you come to sell in 10 years time even after 50% CGT discount you end up on 45% bracket. If unluckily over $250k for the year then your super tax rate goes up from 15% to 30%
when you come to sell in 10 years time even after 50% CGT discount
quit your job and sell in the next tax year…
@jv: That depends on personal circumstances. Problem with this country is most people are asset rich but cash poor.
You are not going to quite a c-suite role so you can sell a property next tax year
@netjock: Why sell? Never sell, so no CGT event, therefore no tax to pay.
If you need cash borrow against the property (asset).
If it has appreciated in price, the current LVR will be much lower, so should have no problem extending the loan (top up loan).
@Malik Nasser: You know unless you are refinancing to take out equity to invest into something else that you pay tax on, officially you can't claim that additional interest.
There was a guy on here who did it with crypto until the company they put the crypto into and took out the loan to live off (never have to pay CGT and let their estate deal with it). The crypto company went bust (Celcius).
Lets just play pretend we're all Wall St finance hot shots who can do complex maths like putting together AAA rated MBS/CDO/CLOs 2008 style? Problem is your collateral could go down which means your loan might get called in, you're personal circumstances might change and you need to liquidate.
Age will be a consideration…
This.
If you can flush the cash out then great. If not then there’s more to life than tax saving (i.e. access to present day funds)
Depends what outcome you are seeking to achieve.
Concessional super contributions (up to the cap) allow you to claim it as a tax deduction but you’re paying 15% tax on the way in but at 30% tax rate you’re still ahead. The cap is quite low so perhaps you can do a bit of both, unless you intend on using past years accumulated amounts?
Thanks for responding. Understand the 15% tax part. I just can’t get my head around is the negative gearing. This extra money parked in offset against investment property would save interest but reduce negative gearing.
It will reduce your 'loss', so yes that will mean a smaller tax deduction.
But you will still come out well ahead compared to leaving it in normal savings account, which would earn pitiful interest that is also taxable.
What did your accountant suggest?
That makes cents. Cheers.
Op is the accountant.
Outsourcing their job to OzB for free rather than sending it off to India. Genius!
Ask OzB
Positively gear the property so you can qualify for more credit to buy more properties. Keep buying properties until you own every house in Australia.
Learned lessons after the first one.
How many different ways can the same question be posed on OzB?
69,420 according to my complex sorting algorithm
Super unless you might need to access that cash before retirement.
Otherwise an offset account on the investment property will be the best place to park it.
Super works out almost always better in the long run and without the tax drag once you reach 60. More people need to understand that super isn't complex - it's just a different tax environment that can be applied to any number of assets.
You don't need to be too cute with it either. Select the growth option of any of the major players which average 10 per cent growth over decades and are therefore well positioned to sustain that growth in the future and watch your additional concessional contributions (that you're not parking in your IP) benefit from compounding interest over the long term.
Do the sums…