Buying NG property to get portfolio to cashflow neutral?

Hi Guys,

If your property portfolio is positively geared, and you need to pay tax, rather than receive a tax return, do you aim to buy your next IP to be negatively geared to return your overall tax situation to cashflow neutral?

i.e say that your property portfolio is making you $6K pa, and say you need to pay tax of $2,500... would you aim to find your next IP that is making a loss, say $6K p/a, so that this $6K loss would offset the $6K profit of your portfolio, and effectively reduce your tax bill to zero?

Of course, in this situation, it's important to find a NG property with good capital growth prospects.

Do people here invest with tax in mind?

 

I keep tax in mind of course... But I do not base decisions on tax alone! What will happen when rates eventually go up? Your neutral portfolio can become very expensive to hold very quickly!

 

Why would you want to lose money just to get a tax refund?

The reason why you're paying taxes is you're making money.

You should not make decisions based on tax alone.

At the end of the day, what matters is the net benefit after tax, not how much tax refund you're getting back.

 

Good point about IR going up in the future. Something to consider.

 

Yes. What I meant was that if u can find the next IP with good CG prospects that is also Neg geared, I think this would be the best outcome. The neg gearing would offset the positive portfolio and u also get an IP that has good growth prospects. If u can get in a situation where you are as close to CF neutral, I think this is the optimum, as you are neither losing nor gaining money from tax point of view. Thoughts?

 

What ever makes you the most money is best.

 

If your goal in this game is to pay less tax then I think you're barking up the wrong tree.

If your goal is to be wealthy (however you might define that) then you need to keep buying stuff that brings you closer to your goal.

C.f. - or c.f. + for sake of it is silly.

 

But why pay tax if u don't need to...that's what I'm trying to get at.

 

Lets say you and I go for a walk
We're having a chat and we suddenly see a $50 note just laying on the footpath
Do we:
A) go shout ourselves lunch with it
B) take zero because you'd rather have nothing than share a cut of your gains

 

So you're effectively saying "why make profits when you don't need to?" Think about this: unemployed people don't pay taxes because they don't earn money.

Again the reason why you pay tax is you're making profits LoL. The reason for a tax refund is because you're losing money LoL. It's like you want to get sick so you can get a medicare refund LoL.

Between 2 properties with same CGain prospects, one is CashFlow+ another is CF- I'd rather go with CF+ cause it's gonna make me NET profits, even if that means I have to pay tax.

Besides, in the current low rates environment, a CF- property is probably a dud property anyway.

 

If the numbers work.. Go for it... But intentionally going out of your way to lose money to save on tax is not the best strategy IMO.

As other have said.. Paying tax means that you are making money!! Saving tax means that you are spending or losing money. Which obviously can be fine in the long run if you are going to have some serious CG.. But then when you sell you will pay CGT anyways...

How does that saying go.. There are only two certainties in life... Death and taxes.

 

The thought that "NG = high CG prospects" is a suspicious proposition.

 

Nonsense, you can save on paying tax and still make money, I know a lot of people who pay a lot of tax who have the arse out of their pants. All the wealthy people I know pay minimal tax you wont find many wealthy people paying 47% tax, but you you can find people who aren't wealthy paying high tax. teg get yourself a good accountant who understands using money efficiently and be skeptical of some advice on forums.

 

You can still have positive cashflows and yet don't have to pay tax at high brackets, if structured correctly eg through a family trust.

However, chasing NG properties just to get some tax refund is not the way to get rich. And some people may look "rich" because of their portfolios but in reality they have small net assets and poor net income.

 

I might buy a negatively geared property to make money through CG. I wouldn't buy it for the negative gearing, that's just something that helps.

The idea to get cash flow neutral is backwards in itself

 

As my dad says no one ever went broke making a profit

 

LoL

Commonwealth Bank is paying billions in taxes because guess what . . . They make billions of profits!

For individuals, there are ways to legally minimise taxes, eg family trusts, but losing money to get a refund is not what rich people aim to achieve LoL.