Forum Replies Created
I'm sorry to say your accountant is incorrect, there is no need to get it valued. You only need to get a property valued if the property is changind from a PPOR to an investment property.
If changing from an investment to a PPOR, the capital gains calculation is based on the % of time the property was producing income.
You can rent it out for up to 6 years as long as you don't buy another PPOR interstate.
The expenses can be deducted from when the property is available to rent.
Depreciation and capital allowance deductions would, in my opinion, be deductible to you. CGT law would require you to add back any capital allowance claimed during the ownership period, when the house is sold. But as ths 6 year rule exempts you from paying CGT, any adjustments to the CGT cost base are exempted as well. In other words, you wouldn't have to pay the capital allowances back if you weren't required to pay CGT.
It does sound like 'having your cake and eating it too', I agree, but I can't find anything that prohibits depreciation and cap allowance if no CGT is required to be paid.
Daniel Cameron wrote:Hi,
Thanks for comments.Can i sort out the tax i pay next financial year? I was under the impression super did not need to be paid for casuals?
Do you mean next July? I wouldn't advise that. The employer is required to withhold the amount of tax from their employees wages, so you would need to register and be remitting the withholding tax from the date of employment.
I'm sorry to say super is payable to casuals, as long as they are over 18, and earning more than $450 per month.
Hi Daniel,
You will need to register for PAYG Withholding with the tax office, so that you can report and remit the amount of tax form your employee's wages.
This is usually done on the quarterly BAS. Are you currently registered for GST? If so, it will just be an extra section to fill out on your quarterly BAS. If not, you will get a whole new form to fill out!
The tax office has a calculator, to show you how much tax you need to withhold, available on their website. http://www.ato.gov.au/scripts/taxcalc/calc_standard_hire.asp
If your employee is earning over $450 per month, you also need to pay 9% superannuation. The employee has a right to choose the fund you are contributing to, but if they don't, you can set one up for them, with whichever fund you like.
Then, at the end of the year, you will need to provide a PAYG payment summary (formerly called group certificate), and remit a copy to the ATO.
Hi Mat,
Unfortunately, regardless of when you drawdown the equity in your PPOR, you won't be able to claim this as a deduction when it converts to an IP.
The basic rule is that the purpose of the funds used determines deductibility of the interest. So if you drawdown to purchase a new PPOR, the interest on the drawdown would not be deductible.
Which is why Richard has suggested getting a separate loan for your PPOR deposit. It means you can pay the non-deductible debt down faster, and also makes it easier for your friendly accountant come tax time.
Dan
Terryw wrote:Terryw wrote:Dan,What about s118.192?
http://www.austlii.edu.au/au/legis/cth/consol_act/itaa1997240/s118.192.html(and what happened to s118.196, repealed by the look of it)
Sorry, I had this around the wrong way – This section applies when converting a PPOR to an investment. Then you will need a valuation.
Sorry for the slow reply Terry. Yes, you're right, this section is for PPOR to investment.
theplatypus wrote:I'm moving into my investment property to live in the next couple of weeks and was told I should get it valued so that I only pay capital gains tax on the value of the property now than what the value would be years later if I sold it. I asked my bank what it would cost for them to value it and they said approx. $150 which seemed reasonable. I've been told that banks usually provide a lower value for the property…but then again, that might be a good thing for capital gains tax purposes in the future right? I guess my question is, should I get it valued by the bank for $150 or is there a better alternative?Whoever told you this is incorrect. (I'm assuming it wasn't your accountant?)
If your property goes from investment to PPOR, you pay CGT on the percentage of time it was an investment.
ie – buy for $250,000, sold for $550,000, rented for 60% of the ownership period. Capital gain = $300,000 x 60%, = $180,000.
You only need a valuation if the property is going from PPOR to investment, not the other way around.
gavsam wrote:Hi there,having got a fuller version of how this works from my accountant guru, here's what i found:
Discretionary Family Trust
to create u need: The legal owner (in name only) – trustee
The assets (business or other assets, such as a home) – trust fund
The beneficiaries
The individual who hires / fires the trustee – appointer or guardian (can be yourself and your spouse)
The trustee can be you and your spouse, just you or your company
So you – Borrowing money in your own name from bank and then providing that loan amount to the trust is much the same as borrowing money to invest in shares which is used for investment purposes and can be used as negative gearing against your personal wages, ie same for borrowing investment property.The bank can still hold your title for the investment property as security – even though its owned by the trust (thus making it easier to get the bank to approve the loan).
As your paying the bank back the loan in your name, the trust is making very little in the way of losses, (perhaps maintenance, rental management fees etc) but by and large you are reaping the bulk of the rent, (so no losses are quarantined in the trust).
Pull the rent out of the trust as it comes in – then use that to help with your loan repayments etc
– CGT is still the same at 50%So you – Borrowing money in your own name from bank and then providing that loan amount to the trust is much the same as borrowing money to invest in shares which is used for investment purposes and can be used as negative gearing against your personal wages, ie same for borrowing investment property.
Wrong. Borrowing to buy shares in your own name is different to lending money to a family trust, as the shares will (hopefully) provide income to you in the future. With borrowing to lend to a trust, there is no income producing asset in your name.
If it's a discretionary family trust, as you have said, you as the individual will not be able to claim any interest deduction for onlending the money..
The reason being is that it defies the basic rule of deductible expenses. ie, the expense has to be incurred in gaining or producing assessable income. If you are not charging the trust to borrow money from you, then you won't be able to claim the deduction.
Even if this didn't contravene s8-1, you would have a hard time avoiding Part IVA, the anti-avoidance section. You are making a tax loss, the income from the trust is distributed in the most tax effective manner. It sounds like classic avoidance to me.
If it is a unit trust, you could claim the deduction, because you are technically buying units in the trust. But U/T's have their own issues, as Terry has mentioned above.
AM2778 wrote:From my knowledge, Legal Expenses on Investment Property are not Tax Deductible.Needs to be verified from a Tax Accountant.
AM2778
Capital costs associated with purchase are not deductible, but the interest paid to acquire the asset is deductible.
mortgagedetective wrote:be shocked if you are making a reference to them. Please clarify.Also, what happened to Taylored Financial Solutions? I thought the updated website looked great. Are you winding that business up?
Check the date on Richard's post. It was from 5 years ago.
If the trust owes you money (ie – a credit balance in the trust accounts) then you don't have a problem.
It's only if you have a corporate beneficiary and the company has a UPE in the accounts of the trust. If you give a distribution to the company, this will have to be covered by a loan agreement, and interest paid to the company under the Div7A rules.
It's a stupid, non-sensical rule that the ATO have implemented because they don't like trusts. They can't get rid of trusts, seeing as they have been around for about 900 years, so they are trying to get rid of them by stealth.
Yes, Interest on Loan B is deductible.
2.5% relates to the construction costs. A QS will be able to work this out for you.
OK
1) Interest on Loan B can be claimed IF it is used for deposit, legals etc.
2) Any holding expenses for the property can be claimed. (Council Rates, LAnd Tax, Water Rates, Insurance etc). Interest on Loan C is deductible as it was used to purchase the property.
3) If the property was built in 1990, 20 years of depreciation has already been claimed, or at least been available to claim. The 40 years is from the original build date, not when you have purchased. A depreciation report would be able to clarify this for you.Just to clarify for you, your income or loss from the property is worked out by subtracting all the expenses (interest, rates, insurance, repairs, depreciation etc) from the rental income.
If the rental income is more than the rental expenses, this amount is added to your other income.
If it is less, this amount is subtracted from your other income.
From a tax perspective, it looks ok. You would be able to claim interest and other expenses on a property rented to your wife, IF your wife is paying market rent.
Firstly, there is no issue renting a property to your spouse. Malcolm Turnbull rents his wife's appartment in Canberra.
The problem I see is that you will be living in the property that you are saying is being rented to your spouse. You can't rent to yourself, and as this will be your home as well, this may cause an issue.
Is the move to NSW a temporary move? I'm guessing from your post that it is. If it is, what would you do with the NSW property after you move back to SA? And how long do you expect to be away from home. Also, do you own your PPOR, or are you still paying a mortgage?
What I'm getting at is that it may be simpler to rent a property in NSW, covered by the LAFHA, and buy an IP closer to home.
Hi Jai,
Are you claiming depreciation on the property? If not, getting a depreciation report can increase the expenses for your rental property. Of course, this depends on how old the property is and the value of fixtures and fittings etc.
Unfortunately, a lot of the loop holes have been closed. For a wage earner, there isn't a lot that can claimed as an income tax expense. If you are claiming a deduction for motor vehicle expenses, make sure you are keeping good records so that the option that provides the best result can be used.
Are you in a position to buy another property, or you do you want to buy another property? Another negatively geared property would reduce the amount of tax you are paying.
DWolfe wrote:Hi,It would have been pretty likely that people put off listing properties for sale during the final weeks of footy and Grand final week. People were actually pulling their auctions after the Grand final had to be played again. Melbourne…..
D
The numbers are amazing.
Auctions Grand Final day – 65
Auctions Grand Final replay day – 585Of those 585, about 20% were rescheduled.
jolmur wrote:Hi I was living in a property that was unencumbered then my parents required care so we bought a place together and the property I was is was going to be sold to pay for new one. It didnt sell so we rented it out and I thought that it would be an investment (which it is) but because there wasnt a mortgage it became positive geared and I have to pay tax. I am single Mum and am paying the large mortgage for the other property and also have to find the tax. I know it sounds like I want my cake and eat it but any ideas on how to keep but not pay tax.
If the property is generating income, then you have to pay tax. The tax will be on the profit, after all the expenses are claimed for the property, such as rates, water, management fees etc.
One way to reduce your tax is to get a depreciatio nreport done for the property. This will cost approx $500, but may give you some extra deductions to reduce your tax. Depending on when the property was built, this may be a way to reduce your tax quite significantly.
I'd suggest that it isn't the tax that is causing the most concern, but the large mortgage. If it is proving too expensive to hold two properties, I'd try to sell the investment property. This will provide the most relief to your cashflow situation.
Which state, Nick?
Kingandy wrote:.. " Mr Pratt got into a shipload of trouble for far less than that.Unless the refunds not returned totals over $500 million, then they haven't made it to Dick Pratt territory.
