Forum Replies Created
Christmas Day for me is going to spent with the air stewards on British Airways. First Class so they are always attentive. I anticipate some fruit cake, a few beers and spreading the Christmas cheer with my fellow travellers and airline staff.
Then when I get to London I get to enjoy another Christmas Day. Two Christmas’s in one year. A bonus !!!
Determining whether something is on revenue account vs capital account is a complex area which you will need to discuss with your accountant.
You will need to determine whether it is a mere realisation of a capital asset or something more. Cases to consider include Scottish Australian Mining Co Ltd v. Federal Commissioner of Taxation , FC of T v. Whitfords Beach Pty Ltd, FC of T v. Myer Emporium Ltd, Westfield Ltd v. FC of T, McCorkell v. FC of T, Statham v. FCT, Casimaty v. FC of T.
Also consider Taxation Ruling TR 92/3.
It concerns me that the representatives from the firm do not seem willing to discuss the details of the trust and how it works. I have no personal experience with this “new” type of trust but if a client should always be informed of the advantages and disadvantages of any structure. It is a clien’t right and a professionals duty to explain how it works, ongoing compliance costs and make the client as well informed as possible.
I deal frequently with Chris Batten and his team at MGS and they have nothing to hide. In fact for a nominal fee the practitioner has a wide range of resources available to them and Chris Balalovski in particular has been fantastic in dealing with issues or questions I have had in the past. They always lay out the pros and cons of their structures and nothing is “hidden”
I’d be interested in hearing more as well. Doesn’t Ed realise that there a whole bunch of accountants and lawyers out there who are currently trying to get further details. Speaking to Chris on Friday he has also had another request to find out more details. It will be interesting to see what his research unvails.
Purchasing property in a unit trust (not a hybrid unit trust) does have advantages in that it can be transferred to your SMSF at a later stage and unit trusts are also entitled to the land tax thresholds as oppossed to trusts (such as hybrid trusts) which have a discretionary component. This can result in a huge saving in NSW on land tax. A structure we use, as advised by Chris Batten and other leading tax specialists, is to have all the units in the unit trust owned by a hybrid discretionary trust. This hybrid discretionary trust then issues special income units to the individual seeking the negative gearing benefits. This is certainly not a new concept. Unfortunately most accountants are just uneducated on trusts and how they should be used to structure your affairs. There are no “secrets” that the rich have. They have well educated advisors that provide them with relevant and up-to-date advice. For $99 for 3 months you can subscribe to Chris Batten’s website and probably gain more knowledge than from an overpriced $1,000 – $2,000 seminar. I have no problem at all with Ed charging $250 for his consultations. That is what he is selling his time. But if a client specifically asks for advice on something he should be willing to provide this to the client. Obviously an additional fee will apply as it will involve his time in compiling and writing the report for the client but this is normal professional practice.
Maybe a few of us from the forum can all chip in together and request the firm to provide us in writing details of the trust, the advantages and disadvantages of the structure and practically how it works. All professionals should be willing to provide their advice in writing. What do u think ?
Cata,
You like to “but and hold”. Sounds like some sort of kinky sexual fetish to me.
Terry,
Our dentist friend told me you were currently cruising around the Asian countries. Last time I heard you were in Japan. Business or pleasure ?
Rikky,
That’s a good point. It’s easy to look at yourself and forget that their are others who have low self esteem, weak characters, etc and are unable to bargain for themselves. In that respect unions do have a role for the weaker person.
If you are concerned about protecting your assets in the case of separation or divorce then consider a binding financial agreement.
However I urge caution. The last 2 times I mentioned binding financial agreements to my partner(s) at the time the relationship started to go sour. They thought it was extremely unromantic and I was admitting defeat of the relationship at the outsought. Of course I had very different opinions and held the view (still do) that any wealth generated during the partnership should be split 50/50 but anything bought into the relationship should be retained by the respective parties. I’m still single so BFA’s can have their disadvantages.lol.
I haven’t read through all the proposed industrial relations legislation but have never worked in a unionised environment and for the past 5 years have worked public holidays, very rarely taken annual leave, never availed myself of sick leave or enjoyed any of the benefits of an employed individual. Why. Because i am a business owner and was only employed as a salary and wage earner in my early years of employment. Even in those employment years I worked 2 jobs (one full time, one part time and did university part time). Seven days a week studying and working.
I was bought up in a family (parents are both Scottish) that instilled in me the desire to work extremely hard, gain a decent education and build up an asset base. The end result. Financial independence. Was it hard. Yes. Was it worth the effort. You bet. Did unionism and all the employee benefits of today result in making my wealth. Not in any way shape or form. In fact my first job was negotiated with the business owner by myself to wash their windows at age 13 for $1. No unions, no minimum award. Just a decision to accept some money for washing windows. Did it every Saturday for 2 years and put my money into shares.
My neighbours tell me a similar story. Came from Sri Lanka with nothing but their clothes. First job for him was as an accounts payable clerk and his wife worked as a secretary. Once they finished at 5PM they went to their second job cleaning commercial buildings in Sydney. First home purchased in Mt Druitt and with 2 children they slowly built up their asset base. Apparently they only stopped the cleaning job when they were 45. At this stage he was a Financial Director and still doing cleaning work at nights. Every holiday they had was spent working in some form. Doing extra jobs for people or increasing their cleaning hours. The end result. A multi million dollar portfolio and they are now retired at 57 and 58 respectively. To me it seems a simple formula. Work hard, sometimes more than one job, be spendthrift early on and invest in a wide range of asset classes.
One of the effect of benefits is that society has become soo reliant on handouts, wanting heaps of leave in all forms and still expecting to be paid handsomely. We need to face the fact that it is a global economy and labour can be sourced overseas for some occupations much more cheaply. It amazes me that people complain about the proposed industrial relations reforms and yet continue to purchase products made in China (check the back of most of your shirts and im sure about 80% read “Made in China”). If you really want to support Australia’s labour base then put your money where your mouth is.
Section 273(6) of the ITAA 1936 says that income derived by a SMSF as a beneficiary of a discretionary trust will be deemed to be special income. This means that any distributions from a discretionary trust to a SMSF will be subject to a rate of 47%. Generally distributions from discretionary trusts to a SMSF are not advised.
Richard,
That is assuming the purchaser agrees to the margin scheme being used. Assuming that the properties are going to be used for residential purposes then the purchaser is probably not seeking an input tax credit and therefore won’t be concerned whether the margin scheme is applied or not.
If however the terraces are used for commercial purposes then the purchaser is not going to want the margin scheme to be applied as they will not receive an input tax credit. Acquisition of property acquired where the margin scheme has been used does not entitle the purchaser to an input tax credit.
Will need to firstly determine the purpose of the terraces i.e. residential or commercial and whether you should apply the margin scheme or not.
Given that this is a property development the sale will be on revenue account not on capital account and therefore the CGT provisions are not relevant.
Wealth,
You can certainly transfer property in-specie to a trust but the market value substitution rules will come into play.
If the property is your main residence, and has always been your main residence, then CGT is not an issue as you will obtain the main residence exemption.
Depending on the State you live in will determine whether stamp duty is payable. It is my understanding that in Victoria property can be transferred between spouses for “natural love and affection” without incurring stamp duty. You would need to consult a solicitor to determine this. In NSW however, stamp duty will be payable on the transfer of your holding to your spouse. The NSW government doesn’t believe in “natural love and affection” apparently.
Other strategies that may be appropriate to consider include :
1. establishing a trust with a secured mortgage taken out over the property so that a secured loan is payable to the trust;
2. long term rental agreement e.g. 300 year lease option.
3. a call option being placed over the property (note that this doesn’t protect any increases in the market value of the property)
4. a combination of these strategies.Transferring the property is usually considered to be the most effective but also the most expensive. Worth discussing with your accountant and solicitor.
I would agree with Terry. About $150K is a minimum for establishing a SMSF.
We have closed a number of SMSF for clients with under $50K as the establishment costs (around $1,200-$1,500) ongoing accounting costs (around $1,200 – $1,500 per annum), annual audit costs (around $500 – $600) for the majority of people is more than the ongoing fees you will pay to a professional fund manager.
Most people who ahve SMSF’s with levels below $150K are usually, not always but usually, unable to devote the time and effort to share trading which is really the only investment you could make with these levels of funds. Over $150K will allow you to look at commercial property and provided the structure is such that the trust is not deemed to be a part 8 associate, then residential property.
She is correct. The land titles office only records the trustee against the title. It is not XYZ ATD The ABC Trust it is merely XYZ. If it is an individual as trustee then the individual will be on the title if a company then the company.
What I find ridiculous about the whole Land Cove apartment collapse has been the media’s concern over a bird. Ray Martin was on A Current Affair the other evening questioning the Assistant Commissioner of Police as to whether the robot could save tweety. As quoted in the Sydney Morning Herald “But it was too dangerous for anyone to enter the three units immediately above the hole, other than the foray to save Tweety.”
It seems ok to displace residents from their own homes when the government wants to build a by-pass, people have to struggle to get medication which in some cases could save or at least dramatically improve their quality of life, some people have to make applications to the various regulators if one endangered bush is found on their land and want to develop, yet we spend our taxpayer dollars and technology trying to save a domesticated bird.
It would actually be quite funny if tweety died of bird flu next week. Sometimes our priorities are severely screwed and resources are wasted. Sorry to any bird lovers but what next ? A special response unit established as part of the Police Service to save parrots, galahs, peach faces.
An individual is said to be dealing at arm’s length with someone if each party acts independently and neither party exercises influence or control over the other in connection with the transaction. The law looks at not only the relationship between the parties but also the quality of the bargaining between them (Granby Pty Ltd v Federal Commissioner of Taxation).
If you do not deal at arm’s length with another entity in connection with the CGT event the market value substitution rule takes effect (subsection 116-10(2) ITAA 1997). Broadly speaking, this is when the capital proceeds you actually received are replaced with the market value of the asset.
When the market value substitution rule is applicable the market value at the time you sell the CGT asset is used to calculate any CGT consequences. Taxation Determination TD 10 identifies two methods for determining the market value of the property at the time of disposal. They are:
· obtaining a valuation from a qualified valuer, or
· computing your own valuation based on reasonably objective and supportable data.
It would appear that your arrangement does not meet the requirements stipulated to be considered a transaction completed at arms length as the sale of your interest in the property to your relative is not an independent transaction between unrelated parties. For CGT purposes the sale of your interest in the property to your relative for below its market value has led to the market value substitution rules being applicable.
Therefore, when calculating your capital gain on your interest in the property you will be taken to have received capital proceeds equal to the market value on the date of transfer.
Accordingly, your capital proceeds will be one-quarter of the market value of the property at the time of transfer and not the amount you actually received.
Had a look at the site. If you were using a structure for negative gearing then the costs would be
Company $1,075
HDT $ 550So this comes to $1,625. Then in NSW on top of that you have will $202.00 for stamping of the deed.
So for doing everything online it will cost $1,827. This is without any advice regarding the appropriate appointer, settlor, trustee, beneficiaries, special income unit holders, TFN registration, GST registration, ABN registration, completion of appropriate resolutions regarding application, acceptance and issuing of special income units.
So yes if you know how to do it all yourself then the online services are great. If not you can get it really wrong. Seen it many times before.
If you like the cost then ask a qualified accountant or solicitor to use this service and then charge you for their time to do the other work.
Be careful with streaming to other beneficiaries were an individual has been issued with special income units.
If the special income units were issued to fund the acquisition of property and none have been redeemed you could loose interest deductibility if you stream to another person without special income units. Refer Munro V FCT and Part IVA of the ITAA 1997.
You can also refer them to Taxation Ruling 2004/4
http://ww5.cch.com.au/Tax+Rulings/tr2004-4.doc
Interest incurred prior to assessable income
1. It follows from Steele that interest incurred in a period prior to the derivation of relevant assessable income will be ‘incurred in gaining or producing the assessable income’ in the following circumstances:
• the interest is not incurred ‘too soon’, is not preliminary to the income earning activities, and is not a prelude to those activities;
• the interest is not private or domestic;
• the period of interest outgoings prior to the derivation of relevant assessable income is not so long, taking into account the kind of income earning activities involved, that the necessary connection between outgoings and assessable income is lost;
• the interest is incurred with one end in view, the gaining or producing of assessable income; and
• continuing efforts are undertaken in pursuit of that end.It is deductible. Refer the accountant to Steele’s case.
Yes where a company can execute a deed without using a common seal if where the company has a sole director who is also its sole company secretary, that person alone signs it. Refer to Corporations Act.
You will also be signing the loan agreement as lender as well in your individual capacity.
