Sunday 2 November 2014

Tax Sux

Having sold our investment rental property at the start of last financial year, my recent tax return ended up having a massive taxable income of over $190,000. Not only did that mean a large capital gains tax amount, but it also meant not getting any rebate for our net medical expenses this year (despite having net 'out of pocket' medical expenses of over $8,000), as DW also had a considerable 'taxable income' from her half of the capital gain from selling the investment property. The large taxable income also meant having to pay both the medicare levy and also a medicare levy surcharge (as we don't have private health insurance). All up, instead of the normal situation of getting a sizable tax refund of some of my PAYG tax (due to deductions for investment loan interest payments), this year I have an estimated tax bill of $32,370 that will be due in about three weeks. As she only works part-time, DW's tax bill will be slightly lower - just under $30,000.

Although we had used most of the net proceeds from selling our investment property to reduce our home loan, we each have around $100,000 invested in cash accounts and some share investments (so we would have funds available at short notice to pay our CGT bill). I liquidated the relevant share portfolio last week in order to have the cash ready to pay my tax bill (the $96,000 share portfolio I bought last year had lost around $6,000 - so I would have been better investing in an index fund, or else just investing in a term deposit), and once the official notice of assessment arrives in the next week or two I'll pay the amount owing and see how much cash DW and  I then have. The plan is for DW and me to each kick in equal amounts and pay off as much as possible of the remaining home loan balance (as the interest is not tax deductible). However, we don't plan to pay off the home loan entirely, as we still have an investment 'portfolio loan' account secured against our house equity.

Going forward, the reduced mortgage payments (once most of our remaining home loan has been paid off) will provide some additional cash flow, which I'll use to slowly pay down my margin loan balances as I get closer to retirement age. The big question mark hanging over my financial planning is whether I will remain in full-time employment until my expected retirement in about 15 years time...

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Anonymous said...

Wen you are expecing a large tax bill it is better to lodge your tax return as late as possible, your tax return could have been lodged next year giving you almost another year to pay said...

As I don't use a tax agent, doing my own returns using eTax the lodgement deadline was midnight on 31 Oct 2014. so I had left it as late as possible to lodge my return.