Forum Replies Created
The legisation regarding the FHOG is a little wishy washy. But there are some key factors to note. The logic behind giving owners the outlet to rent the property out first, is in the situation of the purchased property having a tenant. I know that people have discussed the fact that you must move in within 12 months, but that is not in the legislation, rather it is a guide.
OSR looks at your intention to live in your house at the first opportunity. Obviously if there is a tenant then you can’t really kick them out until the lease if over which is the reasoning for the 12 month period. Should you then renegotiate the lease for another couple of months, the OSR would consider that you breached the legislation as you did not intend to live in the house, rather you used it as a investment unit, as you didn’t move in once the lease was up.
Should you have purchased a property without a tenant and then found a tenant to rent it out to after purchasing the property during the initial 12 month period, the OSR would have a very strong grounds to disclaim your $7,000 grant.
From what I understand the OSR will be reviewing situations like this, as there are alot of people rorting the FHOG system.
Just to clarify, a superfund should it wish to purchase property must buy it outright as the SIS laws do not allow a superfund to borrow money.
Should a superfund borrow money, then it would be a non complying fund and the assets in your superfund would be taxed at 47%. Very steep penalties.
The quickest way to create wealth is to complete the PAYG variation form and receive your tax refund on a weekly basis, rather than a lump sum at the end of the year.
Your interest in your PPOR is a non deductable form of interest, so you want to reduce it as quickly as possible. Adding as little as $10 per week to your weekly repayments makes a huge difference in your total repayments and shortens the length of your loan considerably.
Grreg
I agree with Yack, I believe your friend is better off selling the apartment and keeping the property in the suburbs.
You will most likely get better growth in the suburbs especially if it is house and land, than an city unit.
Sometimes you are better off cutting your losses and starting again.
The body corporate is only responsible to common property, unless there is a by-law passed.
The strata schemes is governed by the Department of Fair Trading, if you have any questions they can help you to determine whether an issue is body corporate responsibility or the individual owners.
The executive committee of the body corporate must follow the rules set out in the legistration governing strata schemes as to what repairs are to be made. This is the most common practice, as most strata body do not have their own set of rules drawn up.
Craig
Your wife is one of lucky few who are able to salary sacrifice private expenses, as she is employed by a rebatable employer. It is definitely a tax advantage for you.
Unfortuantely for the majority of us, we are able to take advantage of this.
DC
CraigC
I’m not too sure whether how your wife is better off. Does she work for a rebateable employer for FBT (eg non for profit hospital or club)? If she works for a rebatable employer then I say take advanatage of it. But if not then it may not be beneficial.
And what is she sacificing her salary for? Home repayment (private expenses) or interest payments on a IP (tax deductable expenses)?
Her salary sacrifice is made from her gross wage but if the payments are made for a private nature then her employer would be subject to FBT and could be worse off.
DC
My understanding is that if your employer repays more than the total amount of interest charged on a loan, then the ATO will classify this as a principle repayment and fringe benefits tax will be assessed on this amount. As a result, if you are not paying tax at the highest marginal rate then you would be worse off.
Troy
Under NSW legislation, a discretionary trust which owns property is subject to land tax immediately, as it is not subject to the land tax exemption.
In the unlikely situation, that you have set up a unit trust, in these situations you would receive the land tax exemption. Most people do not set up unit trusts because it is not as flexiable as discretionary trust.
The other disadvantages for trusts, it that if the trust makes an overall loss, this loss remains in the trust (until the trust makes a profit) and cannot be distributed out to beneficiaries.
DC
Can someone explain the reason why you would do what James Cameron has suggested.
From what I understand from his post, if he places the property in either a trust or company, he says that he will be taxed at a lower rate than his marginal tax. He seems to be suggesting that his property will be making a profit and paying some amount of tax. Why would you want to do this?? And on top of this he would have to pay capital gains tax on sale, plus if the property was put in a discretionary trust, he would have to pay land tax.
On the other hand if he were continue to own in his own name and not pay any tax and his property is capital gains tax free.
Seem to me all James is interested in is, paying extra tax!!
The only explaination I can come up with if that he is worried that he could lose his house because of his occupation it at risk due people sueing him. If that is the case, and he had a partner, wouldn’t it be better to transfer to his partner.
I would appreciate if someone could explain what I am missing about all this, to me his suggestion just doesn’t make sense.
If you are purchasing a commerical property, you should be registered for GST, as you would be able to claim the full amount of the GST when you lodge your BAS, as a result you would not get tax deduction as have not had any loss.
If you where not registered for GST when purchasing a commerical property you would end up paying an extra 10% for the property, it would not be a tax deduction, rather it forms part of the cost base of your asset.
To say that negative gearing is not a wealth building tool is silly. It is not for all, but should you be earning income in the top tax bracket, then it is highly desirable to negative gear to reduce you tax. Steve’s reasons for not negatively gearing are valid, but it must be remembered that the majority of people who have made money in property have done it by negative gearing. Especially in the last couple of years with the property boom.
The keys to negative gearing is that you are relying on capital growth in your asset. So it is ideal to buy in a good area and land (not units like all those con men try to sell you such as Meriton) as that appreciates the quickest. If you don’t have capital growth in your property then you will lose money.
Positively geared property is good strategy, but you must remember that is you can’t get a tenant to pay rent then you will lose money.
Personally for me a combination of both positively geared property and negatively geared property is ideal. It gives me diversification (not just relying on one system), so that I am not soley relying on either rent or capital growth to succeed.
Its Sydney’s skyline
Stamp duty on loans is deductable (generally) over 5 years.
Stamp duty on purchase on property is not tax deductable, rather it forms part of the cost base of your asset (for CGT purposes).
Yes I totally agree with Doogs and Mortgage Hunter.
Jason advice is not correct. It is a common trap for inexperienced investors.
For people who currently live in there own home and intend in the future to buy a new home and keep the old one as an investment property, you should consider getting an offset loan account.
In this situation you would make the minimum loan repayments on the mortgage loan and any excess payments would go into your transaction account. The interest on your loan would be calculated on the mortgage loan less the amount of savings in your transaction account. But if this property then became an investment property you would be able to claim interest on the current balance of the mortgage loan.The ATO is definitely aware of Instalment Warrants and infact has issued numerous product ruling on different types of Instalment Warrants.
These ruling explain how the Instalment Warrants are taxed.So you check them all out on the ATO website.
IMO, based on your situation, so may be better off setting up a discretionary trust to house your future IPs. Must be positively geared properties though, as you cannot distribute losses from a trust.
A trust is a more flexiable investment vehicle than a company as you can funnel income to the most tax effective beneficiaries.
MJK
Yes, you are correct that, do not have to not have to register for GST if your rent are less than $50,000 per annum.
But if you did that, it would be very costly if you didn’t register for GST, as you would not be able to claim the GST on the purchase of the property.
To be able to claim the GST on purchase or use the going concern exemption the purchaser must be registered for GST.
So I strongly advise any investors who are going to purchase a commerical property to register for an ABN and GST.
DC
You need to be a little careful if you apply for an ABN and then no trading occurs for three years.
The tax office will wonder why you applied for an ABN? As to apply for an ABN you must be running an enterprise/business.
The ATO audit review team may pick up, and consider visiting you to check you out which could be time consuming and costly if they pick up anything untoward up.
I’m not too sure with the $200 rego fee you are talking about a company filing fee with the ASIC, where you would be $200 regardless of whether you were trading or not.
IMO, I would not apply for an ABN unless you are trading. Note that investing in residental properties does not fall under a taxable supply meaning that an ABN would not be necessary.
Commerical properties are fine, except you must keep in mind the GST issues.
Prior to purchasing you need to apply for an ABN, and then consider buying the property as a going concern, which means that you will not have the pay the GST upfront.
Also you would have to lodge (quarterly) Business Activity Statements.
