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The way I read it, you don't plan to rent out the property until your parents pass? The issue as I read it is that having a house that your mother is not living in may affect the pension.
You would need to check with Centrelink and see if their PPOR is still classified as a PPOR if they aren't living there. As long as it isn't being rented while they are living elsewhere, hopefully there shouldn't be a problem, but Centrelink have funny rules. Best to check it out with them.
You don't have to have a business name. Your loan and bank statements would show XX Pty Ltd ATF XX Family Trust. For what you are proposing, a business name would just be an added expense.
kum yin lau wrote:Hi, there might be a way around it.Apparently, you can now borrow as an individual and lend it to your smsf. The rent [which your business pays] is used to pay the interest on the loan.
If it's an undeducted contribution to smsf, the interest is probably not tax deductible.
You might also be in a position to 'salary sacrifice' a large portion of your income to get the tax benefit. This can be very significant.
It all depends on your financial position and your serviceability. Worth looking into.
KY
There are a few problems with this. One, the borrowing has to be non-recourse, so the individual would not be able to use the business premises as security, if it is to be owned by the SMSF.
Two, there are issues with related party transactions. If you lend to your SMSF, the SMSF has borrowed from you, a related party. I still think this is not allowed in an SMSF.
The only way you could do this is if the individual borrowed, then made a contribution to the super fund. The problem here is the majority of the contribution would be non-deductible, and NONE of the interest would be deductible. This would be the WORST way to do it.
My advice is go and see an accountant or lawyer who specialises in SMSF's, who can set up the SMSF and the required borrowing correctly for you, if you decide to go ahead. There are severe penalties for getting it wrong.
Div 40 is regular depreciation – carpets, ovens, blinds etc.
Div 43 is building depreciation.
Any subdivided blocks would be subject to CGT, as the main residence exemption only applies to dwellings. As there would be no house on the vacant block, you would be up for CGT when you sold.
Up until the subdivision, the whole block was exempt, so the CGT cost base is the market value of the land at the time of subdivision.
What sort of assets are you looking to transfer out?
If they are dpreciable assets, they would generally be sold at written down value, and therefore wouldn't incur any tax issues. If it is land or buildings, there may be a CGT issue, as these would need to be sold at an arms length value.
With a DT, the distributions are made at the total discretion of the trustee. Sure, you could organise that the trustee pay the profit distributions 80/20, but it would be much safer to have a Unit Trust where you own 80% of the units and your partner 20%.
The service trust can also be set up as a Unit Trust., so you can own the units in line with the ownership percentages. The original Service Trust was a Unit Trust.
NAB will not pass any cut on to its customers.
Date you sign the contract for CGT, I'm afraid. I'm not sure about FHOG.
Stamp Duty won't be a deductible expense, but will add to the capital value of the property, and you've added depreciation instead of deducting it.
For tax purposes on your estimates, the first year profit would be $8,800.
If you received this income, the tax payable would be $4092 (at top marginal rate of 45% + 1.5% medicare levy)
If distributed to your wife, through a trust distribution, it would be tax free (assuming no other income). In four years, assuming similar figures, the tax savings will have surpassed the projected initial outlay of Stamp Duty.
The other factor to consider is if you rent for 4 years and then sell, in your name there will be no CGT, in the trust name there WILL be CGT.
The decision may hinge on what you plan to do with the property in the medium to long term.
Interest deductibility is determined by what the loan amount is used for. If you used the redraw to borrow shares, interest would be deductible, but would be worked out as follows.
In your example, lets say your home loan balance was $250,000 after your redraw.
If you use that $100,000 to buy shares, the interest deduction on your home loan would be 40% (100 / 250) of the total interest for the year, or portion of the year.
Richard is correct in saying it would MUCH easier for you to get a new, separate loan for investing purposes.
bfantastic wrote:single person
Bank calculated living expenses $13.344pa
No debt
no dependents
Income $80,000pa Gross
Bench mark 8%
max borrowing = $503,385I don't disagree with the calculations, or the ability to get the loan, it just seems an awful lot to borrow on that income. My wife and I earn $150k between us, and have a mortgage of $400k, but the CBA boffins said we could borrow up to $850k. We politely declined, as we wouldn't have felt comfortable, on our incomes borrowing that amount of money.
If this person on $80k borrows $500k, 60% of their after tax income would be going on mortgage payments.
Just because the bank says you can, doesn't mean you should.
god_of_money wrote:I am going to WA for 2-year job contract. I might or might not be moving back again…..If I sell my 1st PPOR into my DFT, do I get an exemption of capital gain of PPOR if I am buying again in WA?
Yes, your WA PPOR would qualify for the main residence exemption.
bfantastic wrote:OK what are your options?
looking at property value between $370K – $380K
Income – $80K before tax.
No deposit
Good work historyAssuming
PAYG
clear credit.
single no dependents
borrow capicity at todays rate $500kIs that right? someone on $80k can borrow $500,000?
$80,000 after tax per month = $5063 (before any HECS repayments)
Repayments on a $500,000 loan at 5.75% for 30 years = $2917.86
Or almost 60% of after tax income.I've seen the postings re: banks tightening LVR, but are they doing anything re: tightening of loan servicing requirements? $500,000 seems an awful lot to borrow on an income of $80,000.
[/quote]How long are you moving away for? Is it a temporary move? Can you see yourself moving back to your PPOR in Newcastle?
If so, rent in WA and rent out your PPOR. As long as you are away from your PPOR less than 6 years, there will be no CGT when you sell.
If not, have you considered selling the Newcastle home, and using the proceeds to start a investment portfolio, perhaps in a Family Trust.
If you just have a super pension that is not taxable, then it is not 'taxable income' so you wouldn't have to do a tax return. However you would need to lodge something with the ATo to show that further returns are not necessary, so they don't hassle you.
Kev,
You really only need to see the accountant when you have your tax done, unless you have any other queries at the time of renting it out, like If you are unsure of what information you need to keep etc.
Go to your accountant at tax time with a good summary of the expenses, plus your agent's statements. If you have a good summary, it will save the accountant time, and you money!
One option is you could have a Unit Trust, where your business partner, or his/her related entity owns 20% of the units, and your discretionary trust (a new one) holds 80% of the units.
The Unit Trust distributes 80% of the profits to your discretionary trust, which then distributes the profits as it sees fit.
Do you own the business assets, or does your partner have a 20% share? If he/she does have a share, the asset holding entity may also need to be a unit trust.
Your accountant should be able to give you an understanding of the best structure for your entity and your business partner.
I think you are counting some expenses twice.
Here's my guess:
Interest of approx $18k, Rates, body corp, agents fees $5k, depreciation $5k to 10k, plus repairs.
Total = $23k to $28k. You income based on $350 pw = $18,200.
You would be looking at a tax loss of $5k to $10k.
From what you've said, the interest on the loan to purchase your wife's property should be deductible.
The only other issue, if I've read it correctly, is that the two investment properties would then be in your name. Depending on your income and your wife's income, this may or may not be the best strategy for tax purposes.
