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Hi
Basically, the gain from the sale of the land will get added on to the taxable income of the company.
If you were to make superannuation contributions (to a certain limit) these could be deducted from the taxable income of the company.
If you believe that superannuation is the appropriate vehicle for you to put your money into, it can be very effective from a tax point of view. I assume that your company does nothing other than hold property, so you are probably pretty limited in tax planning options. I would also assume that the reason you set it up in a company is because the two of you are on higher incomes.
So your options are (given my limited knowledge of your situation) put money into superannuation to reduce the taxable income, or pay tax at 30%, leave the profits in the company (until such time as you and your wife are on lower incomes, then take fully franked dividends from the company ) and use the profits within the company for other investments.
Just remember, once it is locked away in super, it is there to stay!Hi
I am not a hugely experienced property investor at all, but here is my take on your situation.
You said your aim (or the advisor you spoke to said, and you believed) was for the properties to double in value over about a 10 year period. Why have you thought about changing strategy??
If that is the strategy you went in with, and you thought about the strategy and you and your partner agreed it was sound, why try and bail after only 3 years? It is thinking like that that sends people to the cleaner in property investing – buying at the top of the market with a view to hold long term, then selling because in 3 years they havent acheived the results they were initially expecting in 10!!
If what you say is correct, and you are paying 300 per week for 3 investment properties AND your PPOR, I think you are on easy street! my PPOR mortgage repayment alone is higher than that!
What about the option (and you need to investigate if this is something you want to do) of getting a line of credit and funding say half of your weekly shortfall on the line of credit.
I am unsure what due diligence you did when you purchased the properties but if you are reasonably confident with your capital growth strategy, over the long term the growth you get from holding your properties will far outweigh that of the build up on the line of credit. Just an option.
Having said that you should have probably known what your cashflow situation was going to be like before you purchased the properties, and if you struggle to afford $300 per week for a PPOR + 3 rental properties, maybe you should look at your budgeting methods. Most people pay around $250 in rent anyway, so essentially i gather you are saying you hold approximately $1 million of property for $50 per week?
I think you are a pretty reasonable position, dont get so stressed about it, if you are worried about rate rises (which you should think about BEFORE you get your loan) then fix some of the variable amount now before another rise kicks in.
Just stick to your plan for the 10 years you planned to do so, and in 10 years you will laugh at an amount of $300 per week!
Hope this helps with a bit of perspective
All the bestHi
I highly recommend going through a good mortgage broker, they will walk you through each step, and let you know exactly what you need to do and when.
Given the differences between the states, I think this is the best thing for you to do.
CheersIf you want to get a loan on your own for an investment property, I dont know of any other way than having a full time job.
You may investigate the option of your parents guaranteeing the loan for you, I am unsure how that works.
My suggestion for you if you are thinking of investing in property:
First, get a book called “The Richest Man in Babylon”. This is probably my favorite all time book, and has some really good basics in it. It sounds like you are already putting some savings basics in place, which is good.
Read property investing books by Steve McKnight, Peter Spann, and Margaret Lomas. This will give you a reasonably rounded view of different property strategies and basic investment knowledge.
Start going to home opens, asking agents questions, watching how they respond. Learn to read what an agent is telling you between the lines. Learn to look at what makes a good value property, watch what they are selling for. If you walk into 50 properties you will have a pretty good idea when you see a good value property (unless you are in Perth, in which case you could walk into 10,000 properties and not find a good value property!)
This will give you a good grounding, and is worth doing over your uni career so you know exactly where you are headed.
As for how much you are going to earn when you get out of uni, do a google search for Hayes, they release average income reports each year for each sector, this will give you a rough idea. As an idea a graduate accountant can probably expect only about $30,000 per annum for their first year.Mate I think people have given plenty of info on the topic to make a fairly informed decision.
My opinion is that if you have a decision to make that you consider 50/50 then you dont have a decision to make – you are talking about investing, not gambling, and if a decision is 50/50 then you do not have enough knowledge of an issue to make an informed decision so you must err on the side of caution.cheers mate, have you used them before? If so how did it go?
Zorg
I dont mean this with any disrespect at all, but it kind of sounds like you are trying to sell yourself on it as much as anything else.
I remember I had a car once that I purchased from a car yard. Everyone that saw it told me how it was a lemon and i had been royally ripped off. No matter what these people would say to me, I kept trying to tell myself how good a deal it was.
It was very to step back from the situation and actually admit that I had purchased a lemon. When I did, I felt angry and embarressed, but at least I had seen the need to cut my losses before it really cost me big time.
All Im saying is take a step back and look at the situation from a logical standpoint, and then listen to your gut.
If your head and your gut are both happy, then you have nothing to prove or sell to anyone.mate there is no legitimate way to “minimise” tax in this scenario.
If you sell the place your taxable income is going to be:
Sale price – sale costs – purchase price – purchase costs – holding costs – renovation costs.
Your net profit will be the profit from the above – tax paid. You just have to treat tax as a cost. If you are on a high tax bracket, you may look at the option of putting the property in your partner’s name if they are on a lower income, or doing it through a company which will pay 30% tax, but then you have to get the money out of the company.
however…Maybe think of moving into a property, living there as your PPOR, with no intention to sell unless the value of the property is too good to refuse. Then perhaps you may do the same thing again.
Please read that last bit thoroughly, as it may give a possiblity of not paying any tax on the thing at all. possibly.Hi
Hopefully someone with more experience will answer your other questions, but with regards to tax on sale if you are renovating and selling within 12 months, there is no way around this. To get around this is called Tax Evasion and is very illegal.
You can structure it to minimise your tax by purchasing and operating through a trust or company. Best to see an adviser who has a full understanding of all your circumstances, ie marital status, income, etc.
If you make money through an investment or business venture there is nothing wrong with paying your legally required amount of tax.
Maybe think of moving into a property, living there as your PPOR, with no intention to sell unless the value of the property is too good to refuse. Then perhaps you may do the same thing again.rather than ask whether there is capital gains tax, it is probably more appropriate to ask whether there there is a taxable income being derived.
You are undoubtedly making an income, and it would be very hard to argue that it should not be taxable. Your sole purpose for doing it is to makea profit.
I would suggest that it would be looked at in a similar way to commission received by a real estate agent.
Of course it would be difficult for the ATO to actually find out that you had made money from the deal, but if they did find out and you hadnt declared it you would be in a lot of strife, copping not only tax, but fines and penalties as well.What is your business structure? If it is a Trust or sole trader it makes no difference whether you call it wages or hush money, it is still attributed to you 100% taxable – ie as a sole trader your taxable income in the business is your taxable income as an individual, and a Trust will have to distribute all the income each year which will be a fully taxable distribution to you.
If you have a company there could be even bigger problems than having an extra 20k added to your taxable income.
The options are:
sole trader – no option you are taxed on the full 80k.
Trust/company – maybe you could buy a property through the company/trust. have a chat to your accountant about the logistics of this, otherwise your trust will distribute the full 80k to you (or split it up between the beneficiaries) and you get taxed on it anyway, or your company may be able to issue you a dividend (hopefully the company would have franking credits available for such a dividend)you might find the best option is to say to your accountant “I want to take 20 grand out of the business, what is the most tax effective way for me to do this”.
Remember you are paying your accountant to help, if you dont understand ask him/her to explain it to you in more simple terms.
Many people get in trouble mixing business funds and personal funds – plus you may pay more in accounting fees as your accountant tries to work out what you did!you need to have a think about why you want to do this. I can only see a reason for it if you were going to save a significant amount of money week to week, or if you need to move locations (ie closer to work or something), otherwise you will probably find you are no better off just because you call it an investment rather than your home (in fact if you sell it you could be worse off calling it an investment). Of course if you rent closer to work and save $100 per week after including rental losses and fueld costs then it may be worth looking at it.
As for deductibility of interest, as long as you are using the borrowed funds soley for the purpose of creating a taxable income, you can deduct the interest. If you convert your property to a rental property, you can deduct the interest paid on funds borrowed LESS any funds used for private use (if you drew down on the home loan 12 months ago to buy a car, you cannot deduct the interest on this component). The ATO doesnt care what the loan balance is when you decide to rent the property out, they trace the funds from the loan to see whether it was used for private use.
If you decide to do this, you will need to see an accountant to calculate the appropriate amounts to deduct and include as income in your return, but I think you will find you are no better off renting it out, and are probably better continuing to live in the property and pouring extra money into it when you can (if you put an extra $10,000 into the home loan per year you will save 7% or whatever your rate is. This is better than a 7% Term Deposit, as you are not paying any admin fees like you would in a Term Deposit).
Hope this helps.Couple of ideas for you:
– over here in WA we have a government lender called Keystart, they will take into consideration welfare payments as income when calculating your borrowing capacity. Not sure if there is a lender like this in your state but a mortgage broker should be able to assist with this (the WA lender does not lend on investment properties though, only main residence)– start going to home opens now in the area you want to buy in. after you look at 30 plus homes you will get a feel as to what is a good value home.
– if you are handy, it is a decent idea to buy a place to live in, get the government grant, renovate it over 12 months or so, at which point you may have a job and the ability to borrow more money, and you should have some equity in your home. At this point your options will open up a lot (you can use the 12 months to read and get out to home opens etc increasing your knowledge).
The taxable capital gain will be added to your other income (employment and other investment income). Your total income will then be taxed at the rates found here:
http://www.ato.gov.au/individuals/content.asp?doc=/content/12333.htm&mnu=5053&mfp=001There is a 12 month CGT discount for individuals and trusts (ie you hold the asset for longer than 12 months). see details and an example here:
http://www.ato.gov.au/individuals/content.asp?doc=/content/36552.htmGet all your records together, including purchase costs (stamp duty, search fees etc also dont forget about mortgage insurance if you paid any, this is generally deductible over 5 years but if you have only had it 1 year you add it to the cost base), selling costs (agent fees, any capital improvements you have done, and details of any depreciation you have claimed on the property etc). Put all these details in a safe place, and put notes on anything that you may forget what it relates to (it is a long time till next tax time!), and take it to your accountant (it may also be worthwhile doing a rough calculation if you can and stick the money you will have to pay on tax in a term deposit, and lodge your tax return as late as possible, that way you can get almost 2 full years interest on the amount you owe in tax before you actually have to pay it – check with your accountant as to the due date for lodging).
Congrats on the gain!
