How a Couple Earning $218,000 Found $21,909 in Potential Property Tax Savings

A couple earning a combined $218,000 a year wanted to understand whether a new-build investment property could help them pay less tax now and build wealth for retirement. When Dwyer Property Investment Specialist Gerard Condon prepared their cashflow analysis, the model showed potential annual tax savings of $21,909 and an estimated out-of-pocket holding cost of $244 a week.

The example shows why it helps to look at the full cashflow picture before deciding whether an investment property is affordable.

What the cashflow analysis showed

The analysis considered an off-the-plan new-build investment in Moreton Bay. It brought together the couple's income, expected rental income, property expenses, depreciation and the tax assumptions relevant to their circumstances, using an interest-only investment loan.

Under those assumptions, the model showed:

• A combined household income of $218,000 a year.
• A potential reduction in annual taxable income of $68,446.
• Potential annual tax savings of $21,909.
• An estimated after-tax, out-of-pocket contribution of $244 a week.

A reduction in taxable income is different from a reduction in the tax you pay. In this example, $68,446 was the modelled reduction in taxable income; $21,909 was the estimated tax saving.

How rent and eligible tax deductions affect the weekly cost

The tenant's rent helps cover the cost of holding the property. Depending on the investor's circumstances, eligible deductions and depreciation may then reduce the after-tax cost further. The amount left is the investor's own contribution.

For this couple, that contribution was estimated at $244 a week. It was the modelled cost after allowing for rental income, expenses and tax effects, not the property's total weekly expenses or a guaranteed weekly payment.

This is why a property price or a loan repayment on its own does not tell the whole story. A cashflow analysis needs to show how the different parts fit together, including the assumptions behind the tax treatment. Your registered tax adviser should confirm which deductions apply to you.

The longer-term wealth scenario

Alongside the cashflow analysis, Gerard modelled a longer-term wealth scenario. Using an assumed annual capital-growth rate of 9.5%, the analysis forecast net equity growth, after costs, of $77,622 a year.

That is a forecast scenario, not an achieved return. The 9.5% rate was an assumption used in this particular analysis, not a guaranteed growth rate for Moreton Bay or an assurance that a property will grow at that pace each year. Actual property values and investment results can differ materially from a model.

The tax position, weekly holding cost and potential equity growth are separate parts of the decision. A cashflow analysis brings them together so you can see both what you would need to contribute and the assumptions behind the longer-term plan.

Why your numbers will be different

Two households on similar incomes can have very different borrowing capacity and investment cashflow. Your existing debt, income split, available deposit, loan structure and personal tax position all matter, as do the property, rental income and expenses used in the analysis.

A useful starting point is to work through your own circumstances and goals. What do you want to achieve before retirement? What can you comfortably contribute? What timeframe are you working towards?

The purpose of the analysis is to help you understand the numbers before committing, including whether property investment makes sense for you at all.

Get a cashflow analysis tailored to your situation

Dwyer includes the research and consultation at no separate cost because we make our money from building properties, not from selling consultations. Our related building business has been building in South East Queensland for more than 40 years.

The first step is a confidential introductory phone call with Gerard. We will talk about where you are now, your goals and your timeframe. If property investment looks suitable, we can arrange a no-obligation cashflow analysis and work through the numbers properly.

Book your free introductory call, or call 1800 088 437 and ask for Gerard.

General information only, not financial or tax advice. Figures are based on one example cashflow analysis and its assumptions, including a combined household income of $218,000, rental income, expenses, depreciation, tax assumptions and an interest-only investment loan. Individual tax outcomes, holding costs and investment results will vary. The $77,622 net equity-growth figure is a forecast scenario based on an assumed 9.5% annual capital-growth rate and is not guaranteed. Past performance does not guarantee future results. This information does not take into account your personal objectives, financial situation or needs. Confirm tax outcomes with a registered tax adviser and consider investment decisions with appropriate independent professional advice.