Forum Replies Created
- MsTrump wrote:
My frustration stems from the fact the ATO will be getting something for nothing from me, without lifting a finger to develop the block of land we own or contributing to the process in any way.
That is the same for every business. The ATO aren't on the checkout at Coles or delivering nespapers for the local newsagent, helping them run their businesses. If you go into development, you have to pay tax on your profits. There are ways to minimise the tax, like you have mentioned, by moving into one and then selling and moving into the other, but you can't eliminate the tax entirely.
If you make a profit on the first house, it is tax free, due to the main residence exemption. When you sell the second one, you pay tax on half (if held over 12 months). IT is then further reduced by the time you lived in this house. If you lived in it for two years, you only pay tax on 1/2 x 33%, or 16.67%. If you make a $75,000 profit on this house, $62,500 of that gain is TAX FREE.
So you get the whole gain on the first house TAX FREE, and 5/6 of the second house gain (if you live in it for two years) TAX FREE.
Who would complain about paying such a small rate of tax?
Hi Ms Trump,
Richard and crj are correct, if you are developing a property to sell, this income is treated as revenue, rather than a capital gain, and taxed at your marginal rate of tax.
There is no way to avoid ALL the tax, but 70% of something is better than 100% of nothing.
If your business makes a loss, you can only offset it against other income if you pass the non-commercial losses test. (Turnover over $20,000, profits in 3 of the last 5 years, etc) Otherwise, a business loss must be deferred until you make a profit.
1) No – If you wanted to claim a percentage of the interest (for the one room being rented) you could, but I wouildn't recommend that, as it would make CGT payable on sale (the same percentage)
2) Again no, unless it is being used solely by the person renting the room
As I read it, you are renting out 1 room of your PPOR, to a friend. Are they paying market rent? These arrangements are usually not trated as rental income, but board being paid by a friend, and is not taxable.
As it isn't taxable, the deductions aren't deductible either.
Hi Daniel,
I think the use of 'x times average income' is misleading. For example, when my parents bought the family home in 1983, they paid $83,000, and dad's income was about $18,000 a year. This works out at 4.6 times income. Mum wasn't working, so dad's salary was the sole income.
When my wife and I bought our house last year, we paid $400k. My income was about $65k, so the house was 6.15 times income. However, my wife's income was about $80k, so the house purchase was 2.75 x household income.
The reasons why the cost of housing has gone up compared to average incomes are many, but one fundamental reason is that now, often BOTH partners are working, and can therefore spend more on a house.
If we compared housing prices over the years to average HOUSEHOLD income, the variance wouldn't be as great.
Unemployment is under 6%, and interest rates, even factoring in a 0.5% rise in the next few months are still low.
The 'Steve Keen's' of the world were predicting 40% falls in house prices at various times over the last 12 months. It is starting to sound like the boy who cried wolf.
I realise that is the heading on the link, but the information doesn't read that way.
So if you and your spouse live in separate houses, you would be up for a portion of capital gains tax on each house, but if you live together, both houses are CGT free? That doesn't make sense to me.
The ATO info talks about nominating a house as your PPOR. You don't need to be living in the house for it to be your PPOR, so I think the heading is misleading.
But if you can get the ATO to put in writing that it is CGT free, then good luck to you! Here's the info re: Private Rulings
From the same link as mentioned above
This rule applies to each home spouses own, whether they have sole ownership or own the home jointly (either as joint tenants or tenants in common).
If you nominate different homes (as your PPoR) for the period and you own 50% or less of the home you have nominated, you qualify for an exemption for your share. If you own more than 50%, your share is exempt for half the period you and your spouse had different homes.
http://www.ato.gov.au/individuals/content.asp?doc=/content/36893.htmAs your wifes ownership percentage of her house is greater than 50%, according to this, she would only be exempt from half of the CGT.
The other thing to remember is, according to this, YOU would also be up for 50% CGT on your PPoR, if your wife nominates her property as her PPOR. If she nominates your property, there would be no CGT on your property at time of sale, but hers would be up for 100% of the time it was not her PPOR, and income producing (ie 5.5 years)
I'm with Terry, I think, the ATO has got it wrong.
Hi Brian & Cindy,
Before they were allowed to run their business through a company, most accountants, lawyers, doctors had the business in their name, and the house in the wife's name. Keep them as separate as you can.
Was it your partner's dad's home? Or was he renting it out to someone else?
There is no CGT payable if the property was purcahsed before Setember 21 1985.
What Alistair is saying is that the saving is over 30 years, so it is not worth $80k in real terms. My hurried Discounted cashflow analysis, at a rate of 8% suggets it is more like $32k in todays money.
Still nice, but not as nice as 80k.
The 18% figure is misleading, because people don't repay JUST the $450,000, they repay about $1.1 million, if the loan goes the full 30 years.
The percentage of savings you calculate should be based on the total repayments. Or, calculate the amount if interest saved.
http://law.ato.gov.au/atolaw/view.htm?docid=AID/AID2001479/00001
Generally, yes you can claim the interest. This ATO interpretive decision, based on Steele's case, says that a deduction can generally be claimed for interest (and other holding costs) in a period before it produces assessable income.
mortgagedetective wrote:So yes, the experienced broker may earn a teeny, tiny bit more and borrowers arranging their NAB Homeside loan can save around 18% of their loan amount if they get it through the right broker.
18% of a $450,000 loan (from your example) is $81,000, yet you say the TOTAL a 4-star broker will receive is $28,435.
Could you please explain your calculations.The problem you may have is that if you had the funds from the sale to pay out the LOC, and you CHOSE not to, the nexus between the interest payments and the relevant income earning activity will be broken, and therefore not deductible.
However, in Brown's case, the monies received for the sale of a business did not fully repay the loan taken out, so the interest was deductible after the business had ceased trading.
http://law.ato.gov.au/atolaw/view.htm?docid=DTR/TR2003D8/NAT/ATO/00001
Generally, a company set up to act solely as trustee is the best option, because, if it is sued, it has minimal assets. Your trading conmpany, if that was sued, would bring your business into jeopardy.
You can change the trustee down the track, but it would be easier to get things set up correctly right from the start.
Matt,
Any loss would be offset agains the gross capital gain (ie: before discounting), so the capital gain in your example would be
(200-20) / 2 = 90.Secondly, a revenue loss CAN be offset against a capital gain, so it doesn't matter what type of loss you have in the trust.
There is no gain if you change trustees, because the trust is the beneficial owner of the property, not the trustee.
Lastly, I'm not sure where you heard about not having a Pty Ltd company as trustee. One downside is it is more expensive to set up, and you have an ASIC fee to pay every year for the company. Most trusts I see (admittedly they are running businesses in the trust) have a company as trustee.
My understanding is that if you are living together, one partner can not charge the other rent, because you would be living together in a de facto relationship. However I can't find anything that backs this up on the 'needle in a haystack' ATO website.
nitrodrops wrote:Btw, is the rental income taxed @ 50%, something similar to CGT?
Cheers
NitRental income is taxed at your marginal tax rate, the same as salary income etc.
Capital Gains are also assessed at your marginal rate, but if you have had the investment for over 12 months, you only pay tax on 50% ofthe Capital Gain.
