Tax Refund: Can You Request It Sooner?
Whenever you are buying an investment property, you should never buy it for tax reasons alone because it really has to be about the fundamentals underlying that particular property that you’re buying. But let’s be honest, once you’ve done that, the tax concessions or the tax refund that you get from holding a property is a very strong reason why you can afford, in some cases multiple properties. It helps cash flow the assets. So what typically happens is that at the end of the year, you lodge your tax return; this is how much rent I’ve got, this is how much my expenses are, and then you get non-cash deductions which help to sort of getting that negative gearing impact for a tax refund. So there is an alternative way to waiting until the end of the tax year that you need to talk to your accountant about. It’s called the Income Tax Withholding Variation Form. It used to be called the Section 221D form, and it’s essentially an annual application that you make to the tax office to say that “I don’t want to wait until the end of the year to get my tax refund. Will you give me access to that money sooner?” Now the best way to describe this is through an example.
Let’s assume I’m going to lodge my tax return at the end of the year, and I get a $5,200 tax refund. Now I could wait for that lump sum, or I could say to the tax department, “why don’t you give me, $100 a week in my pay packet for 52 weeks, totalling $5,200.” It’s exactly the same, but I get access to it quicker. And for a lot of people, that can help them with their cash flow and be getting access to their money sooner. So I guess that’s an excellent way to get your money sooner than waiting until the end of the year. But who can actually do this? Typically speaking, an employee who’s on pay as you go, who has had a regular amount of tax taken out of their pay packet each week. The tax department will simply write a letter to your employer and say “you no longer need to take out this amount of tax, you can reduce it by $100 a week” so it ends up in your pocket, and you get access to the cash quicker.
I guess for most people, they generally wait till the end of the year, but you don’t need to do that. It’s important that we maximise non-cash deductions through getting a quantity surveyors report done, so we can maximise the depreciation, which means we can get a bigger tax refund. So my suggestion to every property investor is have a very good chat with your accountant and say, “Is this relevant to me in my circumstances?” because ultimately what we want to do is not give ATO access to your money, interest-free for the whole year. If you can get it back sooner, you can put it in your offset account, which will reduce the amount of interest that you are paying, and overall improve the cash flow for you as a property investor. For some people, they do not know that that is a possibility, but you don’t necessarily have to wait until the end of the financial year for you to get access to your tax refund. And so my message is very clear to all property investors. Talk to your accountant today, ask them if this is something you can complete: The Income Tax Withholding Variation form so you can get access to your money sooner.