Forum Replies Created
They will be up for CGT on their share. As it is being transferred for no cost, the CGT value will be the market value at the date transfer.
The CGT will be (market value less cost) x 2/3 (parents' share) x 50% (as owned over 12 months).
Have your parents paid any interest, holding costs or repairs? If so, they could use the amount spent to increase their cost base, and reduce the amount of capital gain.
Hi Jazz,
Deductions are available for when the property is available for rent. If no-one is renting it during the off season, yet is still advertised and available, the deductions can be claimed.
When renting to friends at a reduced rate, the deductions for this period should also be reduced. eg, if you rent is at 40% of market value, your expenses for this period would also be limited to 40%.
Similiarly, when you are using it, the property is unavailable for rent, and no deductions can be claimed during this period.
Hi Blissy,
1. Bank Fees on the loan (monthly fees etc) are deductible. The borrowing costs at the beginning of the loan (application fees etc) are deductible over a full five year period.
As for bank accounts, it depends on the relationship between the property and the account.
2. Yes.
Dan
$2000 to $5000 sounds like a lot. For a straight forward company and trust setup, you could get it done, with accountants advice for about $1100 to $1400, depending on the level of advice.
For a first time setup, I wouldn't advise setting it up yourself, mainly because an accountant or lawyer will be able to advise the best way to set up the structure, for tax and asset protection purposes.
Any borrowing costs related to the IP would be claimable, but bear in mind that borrowing costs from your new lender (application fees, mortgage reg, legals etc) are deductible over 5 years, or the term of the loan, whichever is shorter. They are not all deductible in the year the expense is incurred, unless the borrowing costs are less than $100.
The break free should be claimable 100% in the year of the expense, as that loan will be finalised.
Hi Darren,
Just to elaborate, in your structure, Company A is the legal owner of the property. Companies are taxed on their profits, unlike trusts, which distribute their profits and the beneficiaries pay the tax on their distributions.
So Company A would pay tax on any profits it makes. It would then be able to pay dividends to the shareholders. For your structure to work, the Trust would have to be the shareholder of Company A.
Its best to seek advice from your lawyer or accountant, as they will be able to provide more details, relevant to your circumstances.
Terryw wrote:Yes, it may, but what usually happens is the givt commissions these reviews and then ignores the findings.That's so true Terry. Especially in an election year.
Singer wrote:couldn't he have seen that no government would let house prices drop by 40%?
What a funny statement – given what jaw dropping decreases we've been seeing around the world in the last year.Singer,
I was referring to the Australian market, which was the focus of the post, and Steve Keen's 40% drop predictions. Could you see a Australian Federal government sitting by, doing nothing, while housing prices almost halved?
Loose Nut wrote:Hey I'm sorry but this is going to be kinda long… but I am really confused, and you guys really seem to know your stuff). My wife and I (24 and 26) bought a townhouse in Redlands (next to Brisbane) just over two years ago as our PPOR. We paid $269k for it and borrowed $254k. We now owe $337k as we pay extra off each fortnight. Our plan was to sell our townhouse (TH) and buy a proper house after we got married.Hi Loose Nut,
Firstly, I assume you owe $237k, not 337k? Is that correct?
In regards to the 6 year rule: You can only have one main residence at a time, so if you purchase a new PPOR, the original PPOR would be up for capital gains tax when you sell, for the period it was not your PPOR.
So in your example, the time the Townhouse was not your PPOR is 6 months, so if you hold that property for 10 years, you would pay CGT on 1/20th of the gain (6 months / 120 months). Then you would get a further 50% discount on the capital gain for holding the asset for longer than 12 months.
If I was you, I would go and see an accountant, so they can explain the 6 year rule to you in detail, as well as other deductions that you would be entitled to an investment property. I wouldn't bother seeing a bank., instead see a mortgage broker who can structure things correctly for your circumstances.
All the best,
Dan
WJ, yes, I am talking about Australia.
I agree, there are some basket case economies, particularly the US and their astronomical debt levels.
I don't know what will happen in the next 1 / 2 / 5 years, but I think there are some unique cultural aspects in Australia (among lowest countries with loan in default, highest in home ownership) as well as things like non-recourse loans in the US that are not being considered by the Keen disciples when they predict future house price crashes.
That's great news. All the best to yourself and your mum.
wealth4life.com wrote:Dear Dan I don't know what planet you are from or how much experience you really have …Low end market is strong it always is at the bottom …
Isn't the entire point of your post that the bottom end could suffer the most if rates go up? But know you're saying it's always strong at the bottom?
wealth4life.com wrote:In Sydney EAST of Pacific Hwy and Lower North Shore and Eastern Suburbs etc properties have dropped by up to 50% … this is top market and he was right … also this can be effected more …The OVERALL housing market is up about 5% this year, not down 40% like Mr. Keen predicted. That is why he is walking to Mt Kosciusko. Sure, a couple of handpicked suburbs have fallen markedly from the peak, but this isn't indicative of the broader Australian market. Or are you one of those people who think that because something is happening in the Eastern suburbs of Sydney, it MUST be the same everywhere else?
Also, please provide me with some data that suburbs have fallen by 50%.
wealth4life.com wrote:First home owner is a false markeyt …I'm not sure what you mean here, but First Home Owners make up less than 10% of the home buying market. Any talk of doom regarding first home owners affecting the broader market is overblown by doomsayers like Mr. Keen.
wealth4life.com wrote:Please phone all agents in Mackay, Proserpine, Airlie beach, Mission Beach, Bowen … and ask their opinion …I'm too busy to do this. BUt are you telling me Airlie Beach is indicitive of the broader Australian market?
And W4L, perhaps you could be a little less preachy and critical of other people's views in future. Your shtick is wearing thin.
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new_start wrote:This is a great blog and he predicts a severe crunch due to too much debt?? definitely worth a read and he updates quite frequently. not sure if it will happen but hemakes some damn good arguments… particularly because of the FHOG etc? I think it will hit home owners more than investors?http://www.debtdeflation.com/blogs/2009/11/04/its-the-leverage-stupid/
He also predicted a 40% housing price drop by the end of 2009 and 15% unemployment. Even though Keen's predictions were way off, he blames the sever reduction in interest rates and government intervention instead of saying he just got it very wrong.
And as someone who is making predictions, couldn't he have seen that no government would let house prices drop by 40%? Surely govt's or the RBA were always going to intervene to steady house prices? Apparently reducing interest rates came as a shock to a professor of economics!
My wife and I were paying 8.9% less than 18 months ago. I don't think rates going to 8.5% will have a major impact.
And Australia has hardly any sub-prime lending.
Here's my advice – go and see another financial planner. One preferably who isn't on a huge commission from the $330k investment into managed funds.
Can your mother not afford the costs associated with owning the house? You have said she owns it outright, so there are no mortgage payments. So she is going from paying rates and taxes (say $1500 – $2000 a year) to paying rent of, say, $250 p.w. ($13,000 p.y.)
Sure, the income from the managed fund investment should be able to recoup the difference, but what about expected capital gains in the property? Then there is the concern that the managed funds are a more risky investment than a home that is fully paid off. What happens if the value of the funds under management goes backwards? Did the Financial Planner advise her of the risks associated with this strategy? Or was he blinded by the dollar signs.
If this was my mum, there is no way I would be encouraging her to do this.
Mister Phes (if that is your real name), I didn't write the bit about the ATO. All I commented on was your defence of Kevin Young changing his name. It gave me a good laugh. The fact you mention David DeAngelo as a defence of the practice, as well as Donald Trump, amuses me even more.
Thanks for brightening up my day.
Mister Phes wrote:He changed his surname to "Young" because it's a more marketable name than Sempe, but I suppose people without a marketing background wouldn't understand this. Nonetheless, both Kevin's sons retain the name Sempe and its not it something they're trying to cover up.This absolutely cracked me up. I'm actually thinking of chaging my name to Brad Pitt, to help me with the ladies.
But it's true, other legitimate businessmen have changed their name, to be more 'user-friendly'. I think Henry Kaye changed his name. Oh, wait. bad example….
If it costs you less than $300, you can deduct the full 100% as maintenance.
If you are subdividing to build and sell for the purpose of making a profit, it could be treated as ordinary income and no CGT discount would apply.
If you are building to rent, the building would generally have the same CGT date as the land, following the rule that what is attached to the land is part of the land.
