Australian Advice Only!

I have an assignment on property investment in New South Wales, Australia.

Scenario is that I have inherited a property valued at $250,000 from my parents. I have a salary of $55,000 pa with personal debts totalling around $30,000. I have three dependants and am looking at investing a property in New South Wales for around $195,000 to generate extra cash flow from renting this property out.

Question: what effects of taxation on the cash flows do I need to identify making assumptions regarding personal marginal tax rate and future income tax rates?

McNamara

What an inspiring assignment you have !!!!!

foxtrot

Hi heleno,

Is this an assignment or a real scenario?  If it is an assignment, the finer points of the tax question are relevent and are best researched using the ATO's online sites and any help you can get from accountants (especially friends who are accountants).

If it is a real scenario there are some things to consider that stand out from your details.  First, the 30,000 in personal debt will be expensive to upkeep and the interest is not tax deductible and is "not-so-good" debt, whereas interest paid servicing debt used in the aquisition of an asset is deductible and is good debt.

The next is that in Australia it is common practice to negative-gear to reduce your tax liabilities on your earned income of 55,000.  This is lousy advice - better advice is to only ever invest for positive cash flow from your assets (in fact, an investment is only really an asset if it provides cash flow rather than takes it).

I'd like to write a whole lot more but would prefer to get the context right first - is this a hypothetical "assignment" for some kind of college work or your actual cicumstances?  If it is your actual cicumstances, are you looking for deeper understanding for ensuring good use of your money or for making sure you cover the tax position?

Regards,
Foxtrot