Forum Replies Created
- tonywwp wrote:Hi Mike
I noticed Tony's comment up there, he is absolutely spot on.. Ive got 7 properties and now buying #8 and you need a broker who knows what hes doing. I can tell you 100% for sure that bank employees are pressured to not only set up lending structures to give the banks more security but also to sell you all the extra features they can. The banks are out there to make money and protect themselves, and thats all there is to it. Cheers SteveIs Tony saying his own comments are spot on? Why has he signed it 'Steve'?
The ATO will use the market value substitution rule for the calculation of CGT.
In other words, if you have sold it under market value, the ATO and CGT rules require you to pay CGT as if you havesold it for market value.
If you are not declaring the income, then you can't claim the expenses.
Depending on other factors (what rent is being charged, did you advertise for the tenants,) the ATO may declare this income as board instead of rent, so you wouldn't have to declare it as income.
shahabr wrote:had a read, seems like you need to have a good amount in there before you can think about investing….30k wont cut it
You are right. Expert estimates recommend that if you have less than $150k, an SMSF can be too costly, due to fees, audit costs, etc.
The ATO are cracking down on Hybrid Trusts, and I think it's getting harder and harder to find a financial institution that will lend to such a structure.
If it is only going to be negatively geared for three years, then I would recommend a discretionary trust. Sure, the losses will sit in the trust until you have profits to offset them, but the flexibility of income distribution down the track is an advantage over a unit trust.
Just to clarify, revenue losses can be offset against capital gains, but capital losses can not be offset against revenue profits.
The only reason I would recommend it is if you were in a unique situation like Linar where your home was surrounded by more than 2 hectares of land. I would say the capital gains PPOR exemptions and land tax exemption outweigh the benefits of losses in the trust, which are quarantined anyway.
Also, what happens when the rent is more than the deductions? You will be paying income tax, as well as land tax and CGT when you sell.
To me, generally, the benefits of buying a PPOR in your own name outweigh the benefits of buying in a trust.
Hi Julie,
1) Increasing the loan for the purchase of your unit will not increase the interest deductions. Basically, the purpose of the loan decides whether the interest is deductible or not, so increasing it to add to your new PPOR will mean that a portion of the loan (ie, the extra bit) will not be deductible.
2) Withdrawing from the offset will not affect the deductibility of interest on the unit, so you would be better off from a tax point of view to use the offset funds to either reduce your non-deductible debt (new PPOR loan). Or you could put it in an offset against the PPOR. The mortgage brokers may have some other suggestions here.
3) It really depends on what you would prefer to do. Just bear in mind that buying and selling costs are expensive, and would the tax benefits and growth in a better suburb outweigh these costs? Another option is doing the repairs and renting the curent unit for a higher price.
All the best,
Dan
If you want to have the properties in a trust eventually, then do it now. Don't wait to do it down the track, as you will be hit with expensive CGT and stamp duty. If your goal is to own several properties, then planning for it now can reduce unnecessary costs in the future.
Be aware though that if the first property is held in a trust and is negatively geard, you can't offset the losses against your own income, as you would if the property was held in your own names.
Terry is rigth, transferring properties in the future is costly and unnecessary, if your structure is set up correctly to begin with.
Hi Dylan,
What ‘positive geared’ means is that the rental income from the property is more than all of your expenses. So yes, you can claim rates, strata fees etc.
Being positively or negatively geared doesn’t change what you can and can not claim as expenses.
ummester wrote:[The house market in Australia, however, is something that many are passionate about:) Do you think that, if house prices continue to grow at the rate they have been in recent Australian history, that any worker other than the most highly paid will be able to afford them in another decade?
There is a big difference between slow growth, or no growth, and a property market crash.
What the pointy-heads fail to take into account is the cultural factors that are unique to Australia, like the high rate of home ownership and the low amount of defaults, compared to other countries. There is also hardly any sub-prime debt, and there are none of the non-recourse loans which added to the problems of the US market.
ummester wrote:Talk to really old people (older than boomers who are themselves caught up in the debt machine as a path to retirement) and most of them can see plainly that housing and related costs are way out of wack to the long term.Old people think everything is expensive, but it doesn't mean they are right. My grandfather still thinks he should be able to get a pot at his local pub for 50 cents.
It depends on your accountant. He / she may want to see a sample of cheques or invoices that you have paid through the LOC. We have one client in your situation, and he has told us that everything that goes through his LOC relates to his IP's, and we trust him, so we have done hardly any checking. But we have made him fully aware of the rules relating to deductibility of interest.
We have also advised him that the ATO will not be as trusting!
If it is rented for less than 6 years, there will be no CGT.
From The Age:
A revival in sales of luxury homes has helped drive nationwide house prices to their biggest annual gain in six years, with all but Perth among the capital cities to end 2009 at record highs.After posting a 4.8 per cent gain in the December quarter, average prices nationwide clocked up an average increase of 12.1 per cent in 2009, Australian Property Monitors said.
"While the First Home Buyer sector kept the overall market afloat through the end of 2008 and the first quarter of 2009, it's been the activity at the top end of the market that has driven the extraordinary overall result for 2009," said APM economist Matthew Bell.
Funds held in an SMSF are for the sole purpose of retirement, so any other benefit providd to the members (such as renting SMSF property) is not allowed.
You could talk to an accountant or lawyer regarding setting up the SMSF, but be careful which accountant you choose, as somne have little or no experience with the specific rules and the SIS Act.
Hi Stephen,
Here is a copy of the ATO document relating to PSI income. It is written in ATO-ese rather than English, so if you would like any further information, send me a PM and I'll do my best to help you out.
Your friend will also be able to include the holding costs, such as interest, rates etc in the cost base.
(Based on the assumption that they haven't been claimed previously, as the property is a block of land.)
Even if you operate through a trust, you will have issues splitting the income due to the Personal Services Income / Entity rules, as all the income comes from the one source.
You would need to find a good accountant in your area, who has his/her head around what can and can't be done in regards to the PSI rules.
Unfortunately, transferring personal services income such as contracting income is harder now due to the PSI (Personal Services Income) rules. Does your partner contract to multiple parties, or is the contracting done to one (or predominantly one) party?
If your partner is contracting to one party, the PSI rules restricts deductions and income splitting. For instance, your partner would not be able to employ you, unless you were doing some of the contracting work. You couldn't be paid to do the bookkeeping, for example.
As for operating the contracting business through a trust, yes, this can provide options for income splitting, as long as the PSI rules have been passed.
mattnz wrote:This article advises us that the average mortgage in NSW just hit a new record of $414k. That isn't the average house value, but the average mortgage!!
http://www.smh.com.au/business/westpac-rate-rise-pushes-customers-to-switch-banks-20100105-lsbd.html
Let's combine that with median household income stats… Median household income is only $1036 in NSW (2006 census), so lets assume it may be $55k per annum now to allow for wage growth.
http://www.leaseinfo.com.au/docs/research/2006%20National%20Census.pdf
After tax this equates to just under $44k per annum. When interest rates are back at 10% again, interest alone without paying back any capital will take $41,400 of this $44k income. This is a serious problem waiting to happen!! So yes, people are too highly geared and increasing interest rates are a guaranteed property bubble collapse.Not to nitpick, but the average household income would take into account pensioners, welfare beneficiaries etc. It would be interesting to see what the average household income is of people with mortgages, as opposed to those without.
You also have used AVERAGE mortgage, yet used MEDIAN income. Is it safe to assume that the MEDIAN mortgage would be less than $414,000? I would say yes.
daniellee wrote:HiWas wondering about this article…
http://www.smh.com.au/business/property-prices-on-way-down-warns-bank-20091204-kays.html
1 – There is a general perception that many FHBs have become highly geared in their rush to get into the property market during the low interest months of late 2009
2 – Credit has been restricted by the banks and will likely continue to be so for 2010
3 – Rising interest rates put pressure on FHBs, wannabe investors and those who are too highly leveraged, leading to more forced sales ni 2010 and maybe even 2011, although lowering unemployment may mitigate this factor to an extent
4 – Rising interest rates mean another rush to get into the market before it becomes too expensive to buy, leading to a surge in prices in recent months, which could lead to a correction
What is the analytical thought / gut feeling on this?
Regards
Daniel Lee
Daniel, have a read of this.
