Differences between US and Australia – confused-

Hi Daniel,

Welcome to the Property Investing.Com forum and thank you for contributing your post.

I have a few minutes now and I thought I’d try to answer a couple of your questions…

You ask

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Is there more differences which would be significant enough to know about? I am particularly interested in the taxation or non-taxation of money received after refinancing a buy-and-hold type property to release equity. Dolf de Roos says it is not taxable, since it is a loan. How does the ATO see this?

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With respect to the American guys who come out here, there are many differences between investing in Australia and in other places.

That is, while the psychology of investing is the same and generally speaking we use the same phrases with different words (eg. settlement vs. close), the actual ‘how’ to do it is very different.

Especially when it comes to tax and property law.

In relation to what Mr. de Roos says as quoted from you, he is right when he says that the money (ie the equity that you are redrawing) is not taxed as you have not disposed of the asset. Capital Gains Tax is triggered when you sell rather than refinance.

However, there is another dimension to this issue which may not be discussed.

While the money may not be taxable, depending on the use of the money then the additional interest resulting from your refinance / redraw may or may not be deductible.

If you use the money to pay for lifestyle related expenses, such as a trip around the world, then the interest on the refinance / redraw is not deductible.

However, if you buy income producing assets where there is the appropriate connection between investing and earning income then the interest will be deductible.

The last thing that I would want to do is have a whole lot of debt that is not deductible that I then have to repay with after-tax dollars.

What I am saying is beware about using equity to fund lifestyle expenses.

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I also see australians talking a lot about wraps, yet americans (I hang out in US forums a lot) don’t seem to mention it. What is a wrap?

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I have explained this at:
https://www.propertyinvesting.com/files/content.asp?cid=wrapintro

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And foreclosures? How do they work in Queensland or generally in australia?

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I’ll tackle this in an upcoming newsletter, but for now let me just say that the privacy laws in Australia are a lot more strict than in the wild west that is North America.

The best way to pick up a bargain is to find a motivated seller via agents rather than lenders.

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What about the business behind mortgages, such as if the banks sell them to investors after a short period.

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I must confess that I am not the expert on this, although I haven’t heard of banks selling thier loanbooks to private investors before. But it might happen…

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What about asset protection? If I have a Pty Ltd company with one property in it, it would protect me from being sued from anything related to that property, (with exceptions according to ASIC) right? WHat about protecting our empires by attacks from outside? If I have the same property inside the company, and I am found liable for something outside this property/company, how can I protect it from being taken?

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Whoa, whoa… let’s take a pause for a minute as this question cannot be answered with a three line response.

The issue you describe here is broadly called structuring and encompasses:
– Asset protection, and
– Tax planning

There is no ‘right’ answer when it comes to what structure is best, but there is a way to control your assets and not own them via a complex company/trust structure.

But this is quite expensive to set up so you want to be serious before proceeding.

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And what about these tax differences? How does GST affect us? and CGT? How does the residential tenancies authority affect us? Can we hold security deposits (bonds) from other investors when entering a deal? Or is it required to send them in to the RTA?

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Daniel, you are asking all the right questions but I tell you what… instead of just providing you with the answer how about you try to find out and post your reply. I’ll check it for you and provide some further feedback as I do.

One final point – if you are serious about investing and will be back home in November, then I suggest that you book a seat at the Property Masters seminar on 9 & 10 November in Sydney.

I can tell that you will profit greatly from attending.

Hope to see more posts from you again soon.

Once again, welcome aboard.

Bye

Steve McKnight []