My top five commonly asked questions – tax myths or facts
What tax bracket am I in and how much tax will I pay in the next bracket. Will I lose most of my pay increase in tax? – MYTH
Well put simply in Aussie our tax scale is what we call bracket creep, i.e. your income tax will increase by %s at a time, if you move into the next tax bracket you will not be paying an extra 5% tax, clear as mud right. Click here for a sample visual.
I will get taxed 50% of my wage if I get a second job? – MYTH (Unless you are earning over $200,000 already).
Most people shy away from getting a 2nd part time job as they expect to lose 50% on their earnings. This is not the case, yes you will pay more tax but this is natural when earning more income. Click here for a sample visual.
If I spend money at the end (or during the financial year), i.e. those Office Works or Harvey Norman Ads you see advertised, I will get all that money refunded that I spent, sadly.. MYTH
This is a real problem and a clever little trick to get you to purchase. The critical point here is that this purchase (assuming it’ allowable) is a tax deduction, not a tax rebate. The difference is a tax deduction you will only get back the tax % you pay on your income. A rebate you get 100% refunded.
For example on my Payg summary my earnings were $65,000, tax paid Inc Medicare $13,947. So the tax % I pay is 21% (13,947/65,000). So if I spent $5,000 on deductions during the year I only get back $1,050 (21%) of the total amount I spent. Be very careful with this, I have seen clients borrow to get the deductions only to find out they get a very small portion refunded. Ask me if you are not sure.
If I purchase an investment property and negatively gear that property I will get all that money back that I am out of pocket, sadly.. Myth.
This can be a real trap for people who are not aware of this. Just like the point above, your rental loss is a tax deduction, not a tax rebate.
So you will only get back the tax % you pay on your income. The key here, don’t borrow heavily expecting to get all the rental losses refunded to you, you won’t.
Most earners will get back between 20-30% of their rental loss. Strongly recommend contacting me and help you do some calculations before rushing ahead with such a big decision.
In regard to my investment property I assume I will be paying 50% on the capital gain, good news…MYTH
The good news here most people don’t seem to be aware that there is a 50% discount on personal capital gain.
In real simple terms, if your capital gain was $100,000, 50% would be discounted, so $50,000 added to your taxable income, and if you are in the 25% tax on your earnings you will pay 25% tax on the $50,000. Basically you only pay $12,500 tax on your gain of $100,000. Pat yourself on the back Jack you have just cleared $87,500 from your investment property.