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Income Tax With-holding Variation & Dividend Returns

Discussion in 'Accounting, Tax & Legal' started by JustB, 17th Sep, 2007.

  1. JustB

    JustB Well-Known Member

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    15th Jul, 2007
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    Location:
    Sydney, NSW
    Hi All,

    I'm in the process of refinancing to invest into managed funds (Navra). I currently hold two negatively geared IPs, and submit an Income Tax With-holding Variation form each year to reduce the tax taken out of my salary each month. With relatively steady income (salary + rent), and relatively steady interest repayments, I can quite accurately (although conservatively) estimate my total loss and the ITWV is no drama, providing me extra cashflow each month, and a small tax return at year end.

    However, once I add managed funds to the mix, what is the best way to handle the ITWV? Are the dividend distributions already taxed? Do I wildly over-estimate the dividend income to play it safe? Do I forget about the ITWV altogether?

    What's the best approach to maximise my monthly cashflow without getting stung at tax time?
     
  2. MattR

    MattR Well-Known Member

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    JustB

    Most people are in the 30% tax bracket for their taxable income, so if the managed funds return pure fully franked dividend income then the position is nuetral, other than 1.5% Medicare.

    If you're in the 40% bracket, then you have a 10% difference to make up.

    But it really depends on the breakup of the income that is distributed ie is it dividend, capital gains, interest, foriegn income etc.

    Best to take a conservative approach and you may find that it doesn't actually change your cashflow too much.
     
  3. JustB

    JustB Well-Known Member

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    15th Jul, 2007
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    Location:
    Sydney, NSW
    Thanks Matt.

    The neutral position does apply to me if the dividend income is fully franked, as I'm in the 30% tax bracket. Does the Navra fund return fully franked dividends? If not, how are people in the Navra fund utilising the ITWV, if at all? I would guess estimating a 20-25% annual dividend should be conservative enough, and simply get a large tax refund at the end of the year when the actual dividend falls below this.

    Does this sound feasible?
     
  4. Simon Hampel

    Simon Hampel Co-founder Staff Member

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    Most of the income distributed from Navra funds is from trading profits, not from dividends ... so the majority of it will not have any franking attached. There would be relatively little in the way of franked dividends distributed by Navra.
     
  5. NickM

    NickM Co-founder Staff Member

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    SIm is right
    if you need to do a ITWV then estimate the income without any credits to be on the safe side.