Key Takeaways
- Many property investors miss legitimate tax deductions, leaving significant refunds unclaimed
- Past tax returns can often be amended to recover missed deductions and receive lump-sum refunds from the ATO
- A PAYG tax variation can improve cash flow by returning tax savings in each pay cycle rather than waiting for a yearly refund
- Loan structure decisions, such as interest-only versus principal-and-interest loans, affect both cash flow and tax deductibility
- Managing the loan-to-value ratio (LVR) is an important part of balancing risk, borrowing capacity, and investment growth
One of the fastest and easiest ways to improve your returns as a property investor is by making sure you’re claiming every tax deduction available.
And the truth is, most people don’t.
For example, did you know it’s possible to go back and claim refunds for previous tax years?
If deductions were missed in the past, your tax returns can often be amended, allowing you to receive a lump-sum refund from the ATO.
That’s money many investors simply leave on the table without realising they’re entitled to it.
Another way to improve your cash flow immediately is through a Pay As You Go (PAYG) tax variation.
This allows the ATO to instruct your employer to withhold less tax from your salary.
Instead of waiting until the end of the financial year to receive a refund, you receive those tax savings in your pay each payday.
For some of our clients, this has even reduced their tax withheld all the way down to zero, putting thousands of extra dollars back into their pocket throughout the year.
Another important consideration is loan structure.
With interest-only loans, you’re only paying the interest on the debt. This typically means lower repayments, stronger short-term cash flow, and maximum tax deductibility.
With principal and interest loans, part of each repayment goes toward reducing the loan balance. This helps build equity faster, but a smaller portion of the repayment is tax deductible.
Neither option is inherently better or worse. The right approach depends on your goals, whether you still have a home loan, and how quickly you want to grow your property portfolio.
Making the right decisions around loan structure can mean thousands of extra dollars in your pocket every year.
When we prepare tax and cash flow advice for clients, one of the most common questions we receive is how much debt is the right amount for investing.
The truth is there’s no one-size-fits-all answer.
It depends on your financial goals, your income, and your personal tolerance for risk.
One of the key measures we look at is the loan-to-value ratio, or LVR.
For many investors, an LVR between 60% and 80% is considered a moderate level of leverage and is the most common range used.
Once borrowing exceeds 80% LVR, lenders typically consider the loan to carry higher risk and may require Lenders Mortgage Insurance (LMI).
For more practical strategies like these, explore the other videos in our Learning Hub.
And if you’d like to see how these ideas apply to your situation, click Book Now, then select Tax Strategy to get in touch.