Forum Replies Created
- propertyboy wrote:^ I intend to rent my unit out and go rent an apartment in the city so I can be closer to work so trying to make two properties PPOR is not the problem, I just want this one to be PPOR.
Where does it say you have to live in it first straight after settlement?
So if you rent it out first it automatically become an Investment property?
That's right. If you rent it out straight away, you have never lived in it, so it can not be your principal place of residence. Main residence exemption is a question of fact, so if it is rented straight after settlement, it is an investment property, no main residence exemption applies and you are up for CGT.
If you live in the property first, you can then elect to treat the property as your main residence, if it is earning income, for up to six years.
propertyboy wrote:Does the 6 year income producing rule still apply if you rent it out straight after settlement? Or do you have to live in it first? then you get 6 year period? If so how long is this period? ATO site does not clarify this.
First question – no, you must live in the unit first, to get access to the 6 year CGT free rule.
There is no fixed period for you to have lived in the unit. BUt you must be able to PROVE, if asked, that you lived there. You can do this by being on the electoral roll, chaging the address onyuor drivers license, having mail directed there, getting electricity connected etc.
The 6 year rule only applies if you are going to rent somewhere else, or move back in with parents etc, as you can only have one PPOR at a time.
Banker wrote:Your right Richard however a few of them have higher rates. If you meet the existing client critera you can get wealth or mav package from 6.16% or the 3 rate saver / economiser.We were told this was only for a PPOR. Investment loans are limited to 90% with CBA.
keiko wrote:That would be stupid to leave it vacant when you can collect an income from it, plus you could easily get a couple of valuations done and keep the highest valuation and if you sell in a couple of years then pull out that valuation when someone comes knocking and then there will only be tax between that valuation and the sale price, but if the valuation is higher than the sale price then there should be no tax to payAs it is your mum's house, she would be the one earning the rental income. You would need to check how this affects her pension, and whether the house would still be an exempt asset. It's not simply a matter of renting it out to earn income, instead of letting it sit vacant. Your mum could easily be worse off if it is rented. You would need to check with Centrelink as to how her pension is affected.
carlin wrote:Thanks for tips. Getting advice is where I get stuck…..I don't know who I should talk to for financial advice on this one. Centrelink won't give advice, understandably. Is there a particular kind of financial advisor I should see or do I just lookup the yellow pages, shut my eyes and poke a pin in to choose one???We're in Adelaide so if anyone has any recommendations of someone here I'm keen to read them.
Carlin
Hi Carlin,
I'm an accountant based in Norwood. If you'd like to have a chat, our office number is 08 8363 2233, and ask for Daniel.
One other option, to add to the list. If you leave the property vacant (ie – don't rent it out) it will be free of CGT forever, not just the 6 years as someone mentioned in a previous post.
All the best,
Dan
ryan mclean wrote:This is where I get confused. Because say you make $10,000 in passive income through cash flow (after expenses), but you have $10,000 of depreciation you can claim. The depreciation is a phantom loss as it doesn't actually cost you anything at the time.This means you will still have $10,000 in your bank account that you can't distribute to beneficiaries because technically you haven't made any money. So my question is, what happens to this money and how can the beneficiaries get a hold of it and use it.
You may not have the $10,000 in the trust. It could be used to buy a new depreciating asset (stove, hot water service etc), or it could have been used to pay off principal, which wouldn't show in the profit calculation.
Generally, when setting up a trust, the trustee or main operator/s of the trust will have to kick in some money, to cover a deposit, legals etc. In your example, the $10,000 can either sit in the trust bank account, or be used to repay some of the initial funds lent to the trust by associated individuals.
ryan mclean wrote:Be careful buying negative cash flow property through a trust. My accountants advised me against it. You can't pass losses through a trust. One of the major benefits of negative gearing is the tax benefit you get (if you are in a high tax bracket). If you invest with a trust you will forfeit those tax benefits.As far as I am aware you cannot ADD a loss to your cash flow in a trust. Depreciation is a phantom loss, it doesn't involve money out the door…it is just a loss on paper. I would look into how those losses work within a trust. I have a feeling they might be different from the usual mode of investing in your own name.
A trust can claim the depreciation, and it just adds to the carried forward losses. With increases in rents, one day the trust property will be (I hope) making profits. The prior years losses offset any profits before any distribution is required, and any tax payable.
So you end up getting the benefit of the losses, just not in the year they were incurred.
Hi Tony,
Basically, the difference is the type of trust.
You CAN claim the losses from investing in a Unit Trust, but not a Discretionary Trust. With a unit trust, you basically borrow money to buy the units in the unit trust. As you own units, and will (one day) get a share of income from the trust, you can deduct the interest expense in your own name.
With a discretionary trust, the profits are distributed at the discretion of the trustee. You could get all of the income or none of the income. As there is no connection with you and the trust (unlike the unit trust where you own a percentage of the units), you can not deduct anything in your own name.
The trust can not be the legal owner, because the trust is not a legal entity. As long as the bank account says 'XYZ Pty Ltd as trustee for ABC Trust', that will be fine.
The company is the legal owner, but is doing so as trustee for the trust, rather than for itself.
Hi Vivian,
The trust is not a legal entity, the trustee is. As the trustee is the company, the bank account should be in the name of XYZ Pty Ltd as trustee for ABC Trust. So that part looks ok to me, as long as it has the name of the trust on the account.
I'm not sure what you mean by company and trust 'profile', I might leave that one for one of the MB's or bank gurus around the place.
I thought I read one of your posts from earler today and it was signed Leigh, although I can't find the post now. Apologies if I have got this wrong.
I think we are on the same path, I may have handled it a bit differently, that's all.
Enjoy the swim….
Cheers,
DanLife is full of assumptions?? My point was that you can't be sure of your position (less risky than WJ's) without at least some other information.
Saying P&I is more risky than IO is neither true or untrue, without the other information. As a financial planner, surely you wouldn't give advice based on assumptions about your clients, you'd gather as much information as possible. At least I'd hope so!
Again, I agree with your basic premise that IO is the way to go. But all we can do as advisors is show people how we believe it should be done. If they go down another path, the that's their choice. It's not right or wrong, necessarily. Just different.
Leigh, there are a lot of assumptions in your argument. You assume M&D 1 have no other money out away to cover the loan, and you assume M&D 2 are religiously putting money into their offset account. You also assume that your situation has less risk than WJ, when you don't know the first thing about his(or her) circumstances.
What is WJ's LVR? How many properties? Where are the properties? Other income? So how can you make that claim based on so little information?
We all now know your preferred position, and by and large I agree with you. But you do yourself no favours by reacting to contrary opinions like you have to poor old WJ.
So my advice, calm down, lay off the coffee and enjoy retirement!
Cheers,
Dan
PaulTextor wrote:Talismans wrote:Can the interest payment be deducted from the capital gain as well if I sell the share less than a year at a profit?
No. Interest can only be deducted from your income. Only capital losses can offset capital gains.Cheers
PaulThis is not correct. Revenue losses can offset capital gains.
Hi Diane
An asset transferred as a result of marriage breakdown can be 'rolled-over' for CGT purposes, until the asset is ultimately sold. This rollover can only be accessed if there is a family court order, or a binding financial agreement between yourself and your ex-spouse.
But bear in mind, it is not an exemption, but a rollover. It means the the spouse selling his/her share of the asset does not have to pay CGT, but it is ultimately paid by the spouse who receives the transfer.
Also, the CGT payable on the ultimate sale is based on the cost price of the asset, not the amount paid to the ex-spouse.
eg House Purchased $200,000 1/7/02
Marriage breakdown – transfer of asset $175,000 1/7/06 (paid for half share)
House Sold $420,000 1/7/09The capital gain is $220,000 ($420,000 sale less $200,000 cost)
dannyde wrote:That's the way i see it. As we are currently renting, both of our PPOR are being rented out to others, however if we sell these PPOR within 6 years of moving out, it should CGT free!Danny, from further reading, the ATO state that couples can only have one PPOR at a time, so, even though you are renting at the moment, only one of your current houses would be considered your PPOR.
If you each choose your own properties as your PPOR, you would be required to pay a portion of CGT on the sale. The legislation does not discriminate between renters and owners.
If you each chose your own properties as your PPOR's, you would be required to pay 50% CGT (less the discount, if applicable) covering the time you have been living together. You would not include time that you were not living together in your CGT calculations.
silverx wrote:7 years as maximum? So let's say I live in a property for 10 years, rent it out for 5 years, the cgt exemption only applies to 7 years? Making 8 years are taxable instead of 5 years?No.
If you have no other PPOR during the time your proeprty was rented (ie, you were renting yourself) you would pay no CGT.
Your property can be classified as your PPOR for up to 6 years if it is earning income, and still be your PPOR, as long as you are not claiming another PPOR. This is because you can only have one PPOR at a time.
This seems to be popping up a lot lately. As Terry said, the legislation and ATO information do not specify a minimum time for you to live in a house before it can become your PPOR.
I can't see a 'bursting' of the bubble, but can see a deflation over the next year or two. A burst probably won't happen for a because of unique cultural and legal reasons. Australia has one of the highest home ownership percentages in the western world (about 70%), and one of the lowest rates of mortgage defaults. This isn't the USA, where you can post your house keys back to the bank, without repercussions.
Also, Tomori talks about the relaxation of Foreign ownership rules. I don't know the numbers, but I doubt this has had much of an effect at all. What may have made more of an effect is foreign based Australians returning to Australia, because of poor job opportunities in US / UK. There seems to be some political capital in blaming foreigners, but I doubt it's based on any hard evidence.
Personally, I think the FHOG influence was overblown, as less than 10% of home buyers at any one time are first home buyers. In the first three months of the reduced grant, prices have continued to rise.
We live in interesting times!
Hi there,
I'll try and answer your questions.
1) Correct, only profit can be distribuited from a trust, and losses stay in the trust, to offset future income. The trust doesn't pay tax, it distributes profit and the beneficiaries pay tax on their share of income. But as there is no profit being distributed, there is no tax payable. The losses in the trust can be offset by either future profits, or future capital gains.
2) Building dpreciation won't affect your cashflow, as depreciation is not a cash expense.
3) Land tax would definitely be an expense, as it is a cost that you will incur in owning the property.
