With COVID-19 hitting the back pocket hard, people are looking for any opportunity to improve their cash flow. One commonly under-utilised option is available to many rental property owners who receive wages and that is to complete and lodge with the ATO a PAYG withholding variation form.
This form can provide a significant cash flow benefit for taxpayers who own and operate a negatively geared rental property. This means the outgoings for the property (i.e. rates, interest, repairs, depreciation) exceed the rental income received and create a rental loss. This loss reduces the taxpayer’s net income and generates tax refunds. Most taxpayers wait to receive this refund in a lump sum when their tax returns are lodged annually. However, there is another option.
The PAYG withholding variation form allows taxpayers in this situation to elect to receive this tax benefit in the form of higher net wages throughout the year. In effect their regular wages are taxed less as the ATO calculates and authorises the taxpayer’s employer to tax their wages less based on the estimates lodged with this form. The overall tax result is the same – however instead of waiting until the tax return is lodged, these taxpayers can receive the tax benefit throughout the year.
With many rental property owners struggling to find a tenant or many deferring or waiving their usual rent, the benefits of this strategy may be even greater this year as rental losses may be even higher. These funds may be needed for cash flow during these difficult COVID-19 times or can be used productively to reduce interest on mortgages or assist with making further super contributions.
If you would like to know more or need assistance completing this form, please do not hesitate to contact us.