Forum Replies Created
Thanks for your help Ross.
It appears to me that the big winner here is the ATO. They seem to get the biggest slice of every pie. But I guess that's no surprise.
Looks like I've got some studying to do. If you want to play the game you have to learn the rules!
Thanks again for your comments guys.
Greg
Hi Ross
Thanks for your comments. You're certainly giving me a few things to think about.
Let's set up a scenario. Say this year the trust buys a block of land, subdivides it and sells it as separate blocks. It also buys a house, renovates it and sells it. Also, it buys a house from a developer/builder as a house and land package, does nothing to it and sells it.
From what I understand, the subdivision would attract some gst. And there is also a margin scheme which I don't fully understand at present. I have much more research to do with this one, but you should be able to claim the gst back on any expenses incurred.
The renovated house would not attract gst on the sale (either in or out) as it is sold as a residential property. But why would you not be able to claim the gst on any expenditure made to do the renovations?
And the house and land package does not incur gst as, again, it is a residential property. GST on the building is not claimable as it is input taxed, and, as I've learned through this thread, it is not possible to claim the gst back on the land because of the margin scheme. I can live with that, but why wouldn't you be able to claim gst on the acquisition and sales costs?
I know this may be a bit simplistic, but how is it different from, say, a supermarket selling taxable and non-taxable supplies? Is it not able to claim the gst on the transportation costs of the apples but it is for the bottled soft drink?
I hope this doesn't come across as contemptuous. I certainly don't intend it that way. I'm just trying to get my head around this and make sure I don't screw it up royally! And I'm certainly not in the game of tax avoidance or trying to claim anything I shouldn't, but I certainly do want to claim everything that is legally possible.
Greg
Thanks Bob
Had me worried there for a second.
The trust is a business just like any other. I thought it a little strange that it would have to pay gst out of income generated from gst exempt items. And being a business registered for gst it should be able to claim any gst paid for goods or services used within the business activities.
Ross, do you know something I don't? Is this setup somehow in violation of tax laws?
thanks
GregHi Ross
Residential rental does not attract gst and neither do sales of residential property, so where would I have to pay 10% to the government?
However, being registered for gst means that I can claim back any gst on purchases I make relating to the business. For example, if we buy tools and such for renovations or pay for any labour, we can claim the gst back on those purchases. I also claim the gst back on my mobile phone bill, the registration fees for the trust and company, accountants fees etc. Basically any purchase made in relation to the business of the trust.
I hope to heck that I haven't got it horribly wrong and that I need to start charging gst on things like rents! Or worse, having to pay 1/11th of the entire income we make through the trust to the govt.
thanks
GregThanks very much Bob.
I thought as much but it was a little confusing.
On the purchase of land, would I be correct in saying that there would be no circumstance where the gst would be claimable?
If bought from a developer, they would most likely have used the margin scheme in which case you couldn't claim the gst. And if it was bought privately (i.e. 'secondhand') there would be no gst anyway.
In your opinion, would you say that there are no gst implications with regard to residential property? i.e. gst is not claimable and there is no requirement to charge the gst on the sale. (Unless you were the actual developer.)
Would a block of land bought for commercial purposes (eg. to build a shed on to lease out) be handled the same way?
thanks again
GregHey Guys
This is my first post to the forum. I’ve been reading a lot of it and there seems to be some fairly astute people on here.
I’ve been researching property investing for some time now and am keen to get some runs on the board and get this ball rolling. I have some concerns though.
Chris_J – I live in Townsville and at the moment I cannot for the life of me find a property that even comes close to being able to achieve a CF+ position. Property selling for $150000 is renting for $180-$200/wk. Now, anyway you look at that it just ain’t going to be CF+. I estimate that you would have to pay $50-$70/wk out of your own pocket after PIRI (principal, interest, rates & insurance.) I am actually looking at a duplex at the moment which is listed at $250k with both units renting for $120/wk each. Sure, the rents are under market value and this property could probable achieve $300/wk but even at that I still can’t get it in the black. Am I not being creative enough? Is there something I’m missing. I have pretty much given up on Townsville at the moment and have been looking further afield.
Which presents my next problem.
I have actually found some property in a more remote town which seems to have a fairly stable economy although it has little or no population growth at present. I don’t think it’s going to disappear overnight but I also don’t think it’ll produce any great capital growth. OK. Back to the problem.
There are properties here selling for $150000 that are producing rents of $300/wk. Now by using Steve’s “11 second solution” (Rent/2*1000) this property should be CF+. By my calculations it is. I reckon this should return about $25-$30/wk positive cash after PIRI.
This all sounds great and all, but my problem is this:
I’m working on a 7% interest rate. What happens when the interest rate jumps to 8%? The cashflow drops to $4.00/wk. The same happens if the propery is vacant for four weeks of the year. It just seems to me that this is a big risk for 30 bucks a week. If either of these figures increase to any more than that, you’ve got a CF- property on your hands.
My question to you guys is……am I missing something? Am I over-analyzing things? Is that even possible?
Please, someone. Give me your thoughts.
Cheers
BundyP.S. Steve’s 11 second solution has always amused me. I think it’s great. It’s makes me feel super smart ‘cos I can work it out in 2 seconds. [biggrin]
