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Tax variation form - The quickest way to improve your cashflow as a property investor.
Cash-flow is the lifeblood of any business, and property investing is your scalable business. Few, if any want to pay more tax during the year than required (although more tax = more profitable income, so some might argue oterwise), but why wait for it tax dollars back, when you can put it to better use now.
For example, these reduced tax deductions increase your take home pay each week and could contribute to increase the cash input required in servicing your loan.
Rather than wait for the annual tax return to be repaid in one lump sum at the end of the financial year, be paid directly each pay period. Whatever that equates to for you, you'll receive additional in your pay each week for the remainder of this financial year. This additional cash flow can be used to:
- Improve your lifestyle
- Repay debt faster
- Improve the position of an offset account
- Save
- Re-invest
What is the PAYG Income Tax Withholding Variation?
An Income Tax Withholding Variation (ITWV), is an annual application made to the ATO to vary the amount of tax withheld from your salary each pay by your employer.
This variation is valid for the entire financial year. It simply means that a taxpayer who is entitled to a refund at the end of the year can access the funds each pay period, rather than waiting until their annual tax return is completed and lodged.
Find out more and find the form...
The PAYG withholding variation application (e-variation) should be used when a payee (the person receiving a payment) wants to reduce their pay as you go (PAYG) withholding rate for the year ending 30 June.
The main purpose of varying the rate or amount of withholding is to make sure that the amount withheld during the income year best meets your end-of-year tax liability. For example, you may want to apply for a variation if the normal rate of withholding leads to a large credit at the end of the income year because your tax-deductible expenses are higher than normal.
https://www.ato.gov.au/Forms/PAYG-withholding-e-variation/
Under tax law, the Australian Taxation Office (“ATO”) in special circumstances, may vary the amount an employer is required to withhold from your pay packet.
Some taxpayers have losses from other business activities which can be offset against their wages and reduces their taxable income, which in turn reduces their annual tax bill.
So why pay too much during the year, just to get it back at year end? A “withholding variation” allows your employer to deduct a lesser amount of tax than normal each week, so that the total over the year is correct.
Example: Steve is a baker who is paid a regular wage. He owns an investment / rental property.
Steve’s annual gross income from his only employer is $80,000.
He estimates that his rental property’s interest and other costs exceed his rental income by $15,000 each year. Therefore, his estimated taxable income will be $65,000 ($80,000 – $15,000).
Steve can apply for a variation to have his withholding rate calculated based on his estimated taxable income of $65,000.
NB. The granting of a variation doesn’t mean that the ATO has accepted the tax treatment of the income and deductions in your application. Your actual tax liability will be determined when you lodge your income tax return.
If you want to vary your withholding amount downwards, you need to lodge a PAYG withholding variation application form with the ATO. Applications must be lodged using the correct version of the ATO approved form. A new version of the form is issued each financial year.
https://www.ato.gov.au/Forms/PAYG-withholding-e-variation/
A word to the wise.
The ATO will process your application only if you:
- have lodged all required tax returns and activity statements in prior years,
- did not receive a debit assessment on your last tax assessment (if you also had an approved withholding variation for that year),
- do not have any outstanding tax or interest debt.
The ATO may ask for more information from you before or after your application is processed. You must make sure that this information is adequate to enable an accountant to calculate a withholding rate to meet your end-of-year tax liability. If your application is not approved, you can apply for a review of the decision.
What’s the process to set up your own Income Tax Withholding Variation?
- Download a copy of ITWV form here
- Organise a meeting with your account to fill in the ITWV and estimate your tax return.
- Have your accountant send the ITWV form to the ATO.
- Have your accountant send the ITWV form to your employer.