Forum Replies Created
HI Lambsie,
The key point is ‘the purpose of the loan’ as the new loan is to buy a new PPOR then any interest is not deductible.
The issue of where is the security coming from is irrelevant – the purpose of the loan test is the test of deductibility.
Derek
derekjones1@bigpond.comProperty Investment Support Available. Ongoing and never stopping. PM welcome.
Originally posted by waynel2:The spokes person then said that with the ATO you can fill out a tax claim form that would allow you to recieve that $5-6K on a fortnightly bases – rather than a lump sum at the end of the financial year. This would work out that you could be recieving an additional of around $115 a week, on top of your rent!
I was just wondering if anyone is claiming this 5 year depreciation – and if it works out as good as these seminar guys talk it up to be?
Hi Wayne,
As others have said the capacity to reduce your pay period tax applies under Section 15.15 of the Tax Act. This section actually applies to 58 different sub-categories of investment – one of which happens to be property investment.
The form (NAT 2036) is availbel on the ATO website and can be completed at any stage of the financial year up to 15th May of that year. A 15.15 declaration only covers one financial year at a time and will need to be redone for each year you want to use such a facility.
Completing a 15.15 is very simple and requires the same type of book-keeping as doing your own tax except you are projecting your income and expenses. As such your ‘work’ income is included along with rental income and is offset by work related expenses, interest costs, rates, taxes, insurance, management fees etc.
For someone on a salary this is relatively straight forward – however you need to be aware that the Commissioner of TAxation does not have to approve the reduction in pay period tax and as such it is in your interests to ensure you get it pretty right. The tax office get narky if you use a 15.15 and then end up owing them tax at the end of the financial year.
The 15.15 is highly suitable for negative gearers as it maximises your cashflow situation and can ensure that an investor is not dipping into their pocket too far.
In our situation we have been able to use 15.15 to buy ‘negatively geared’ property that, with the benefits of depreciation, haven’t affected out weekly cashflow. At the same time we have enjoyed significant growth in value.
Be aware that depreciation claims actually have a 40 year duration from construction (post 1985) and depending upon whether or not you prefer to use the prime cost method or diminishing value method of claiming depreciation there can be a more significant claim available in the first five years of ownership.
Derek
derekjones1@bigpond.comProperty Investment Support Available. Ongoing and never stopping. PM welcome.
Hi Bucko,
You lucky bugger – given that you bought the property pre-1985 you are Capital Gains Tax free for the life of the property as such it will be very beneficial to hang onto it ‘forever.’
As there is no debt on this property you will have no interest claims available to you. Rates, insurance, land tax (shouldn’t be a problem in Q’land with their threshold), repairs, management fees etc will be deductible.
Unfortunately the loan for your new home will not be deductible even if it is secured against your soon to be IP.
As such you may find it cheaper , and a better long term decision, to rent out west and buy another property closer to Brisbane. Two rents will in all likelihood make your portfolio positive.
As an after thought – as your current property pre-dates CGT you may even be able to buy another property, establish this as your new PPOR, move out west and get the 6 year CGT exemption on the new property too – definitely worth a call to a good accountant.
Derek
derekjones1@bigpond.comProperty Investment Support Available. Ongoing and never stopping. PM welcome.
Originally posted by RussH:When are people going to wake up and start blaming themselves for their own wrong doings.
Much easier to blame someone else Russ – copping it on the chin hurts too much.
Trouble is shifting the blame to someone else invariably also usually means they didn’t learn a lesson from the experience coz – it was someone else’s fault.
Derek
derekjones1@bigpond.comProperty Investment Support Available. Ongoing and never stopping. PM welcome.
Originally posted by The Mortgage Adviser:You mentioned interest rates as high as 10%. I had a loan at 18.5% when I was 18 (early 90s). Labour was in control then.
Hi Rob,
Amd I’ll be very surprised if this card doesn’t get played in the campaigning in the lead up to the next election. Given there are, supposedly, a number of investors who are stretched with the two rate rises of 2003 – this could be a big card too.
Derek
derekjones1@bigpond.comProperty Investment Support Available. Ongoing and never stopping. PM welcome.
Hi Sonya,
I recommend you download the ATOs CGT booklet http://www.ato.gov.au/individuals/content.asp?doc=/content/31570.htm
as they have a CGT worksheet.You’ll be able to enter the exact figures as they relate to your situation and come up with a definitive answer. I hope you kept all of the invoices and receipts from the property from tiem of purchase as these will be required to help you minimise any CGT liability.
Have you considered reviewing your existing IP to see if there are ways that it can be made CF+ – this will, if it is feasible, save you considerable $ in selling costs and taxes.
Derek
derekjones1@bigpond.comProperty Investment Support Available. Ongoing and never stopping. PM welcome.
Hi Steve,
Suggest a search of the ATO website and/or a read of the following document;
http://www.ato.gov.au/individuals/content.asp?doc=/content/31570.htm
You’ve got nothing better to do this afternoon the Dockers are getting a hammering at half time[biggrin]
Derek
derekjones1@bigpond.comProperty Investment Support Available. Ongoing and never stopping. PM welcome.
Hi Rob,
Thanks for that – I assumed (incorrectly most lenders only did 50% on vacant land) and such will change my comments from ‘I would then consider selling the land unless it had a definite purpose in your investment of life plans and use the proceeds as a basis for other income earning investments’ to hang on and use the asset as security for LOC as per your suggestion.
I still would really like to know what the land is for[biggrin]
Derek
derekjones1@bigpond.comProperty Investment Support Available. Ongoing and never stopping. PM welcome.
Hi Agordon,
If ‘subject to finance’ was the only condition you placed on the offer and acceptance and this condition has been satisfied then I belive you are expected to now buy the place.
However I also suggest a discussion with a property savvy solicitor – not conveyancer, if you are now wanting out. They will be able to explain any options you have available to you – at best there will be penalties involved at worst you’ll have to buy the land.
You have’t indicated why you want out – I assume it is a change of mind issue – nonetheless you may be able to build/erect/transport (depending on local by-laws) a house on it and make it into investment property.
Derek
derekjones1@bigpond.comProperty Investment Support Available. Ongoing and never stopping. PM welcome.
Hi Retiresafe,
In addition to the points raised by Simon and Rob I believe you need to work out what sort of property investor you are.
Largely you will fall into a cashflow or growth investor (or combination thereof) and as such this decision, and your plans along the way, how you intend using property gains (income and/or growth) in the future will determine where you start looking and what sort of property best suits you needs.
I belive an indication of your current borrowing capacity and discussions about purchasing structures are fundamental piecesof information – take a little time to talk to qualified experts and get these foundation right and yoou’ll improve your chances of future success.
Derek
derekjones1@bigpond.comProperty Investment Support Available. Ongoing and never stopping. PM welcome.
Hi Yack,
I would suggest that REIV only (largely?) uses information from REA and as such their figures probably don’t include private sales as their statistics as highlighted in the article come from their 700 members.
All in all it does go to highlight the accuracy of MacFarlane’s comments about the lack of hard and comparable stats in the real estate arena.
Derek
derekjones1@bigpond.comProperty Investment Support Available. Ongoing and never stopping. PM welcome.
Originally posted by The Mortgage Adviser:Loan 3: $160,000 LOC secured against the $200,000 land
Hi Rob,
Very curious – are there many lenders doing 80% on vacant land?
Derek
derekjones1@bigpond.comProperty Investment Support Available. Ongoing and never stopping. PM welcome.
Hi Leesa,
They are very simple to organise – all you need do is ring your banker/broker and ask for your current ‘savings’ account to be converted to an ‘offset account’ and nominate which account you want it linked to.
We have a ‘savings’ account linked to our home loan which has all income (wages and rent) deposited into it. We buy using a credit card and pay off the CC every month and have electronic transactions to pay the various mortgages around the place.
This way we maximise the benefits of our rental income as a means of help to make significant inroads into our non-deductible debt.
Derek
derekjones1@bigpond.comProperty Investment Support Available. Ongoing and never stopping. PM welcome.
Hi Learay,
When doing ‘rough calculations’ I use 5% of the property cost to calculate your loan and purchasing costs.
A week is fairly typical as a letting fee and insurance varies considerably depending upon the location of the property.
I believe there is an insurance website around that gives indications of likely insurance premiums. Someone may know the address.
The local council will be able to tell you exact rates for the property in question.
Landlord insurance – allow $220 and you’ll be fairly safe.
But all in all ‘educated’ rough figures are OK at the first stage of property investing. I would be more concerned with ensuring the fundamentals of the property are accurately researched.
Derek
derekjones1@bigpond.comProperty Investment Support Available. Ongoing and never stopping. PM welcome.
Hi Leesa,
There are a few questions that you may like to consider as in some respects the answers may well determine what you need/want to do next.
At the moment you have a $200K block of land sitting there that isn’t giving you a lot of return. I assume it was used as security in the past for the IPs you have.
Based on the numbers you have provided the $190K property now has a LVR of less than 80% and the $120K property just over 80% as such you may be able to unentangle any securitisations that are in place – even if some LMI was required for the $120K property.
A learned broker will be able to pass comment on the benefits or otherwise of doing this.
I would then consider selling the land unless it had a definite purpose in your investment of life plans and use the proceeds as a basis for other income earning investments.
Obviously the correct course of action is really only determinable by yourself and as such having an endpoint in mind will certainly make the steps along the way much clearer.
Derek
derekjones1@bigpond.comProperty Investment Support Available. Ongoing and never stopping. PM welcome.
Hi Pinotcat,
As Chan indicates you will need to identify your preferred buying area/s as buyers agents are effectively REA and have an area of expertise and knowledge.
Buyers agents typically work in the larger centres.
Derek
derekjones1@bigpond.comProperty Investment Support Available. Ongoing and never stopping. PM welcome.
Hi MA,
Yes – do a search on Depreciators posts and you’ll find it there somewhere. Sorry can’t help anymore.
Derek
derekjones1@bigpond.comProperty Investment Support Available. Ongoing and never stopping. PM welcome.
Hi Mortgage Advisor,
Depreciator has an office in Perth.
Derek
derekjones1@bigpond.comProperty Investment Support Available. Ongoing and never stopping. PM welcome.
Hi Gatsby,
You are entitled to amend your last four tax returns and as such I would suggest that it would be worth your while – subject to age and nature of the property.
I would be very surprised if your accountant included a depreciable allowance for buildings which means you could be doing yourself out of 2.5% of construction cost/40 years or the remaining depreciable life of the property.
Definitely worth a call to Depreciator.
Derek
derekjones1@bigpond.comProperty Investment Support Available. Ongoing and never stopping. PM welcome.
Originally posted by The Mortgage Adviser.:I am just asking why there isn’t adequate regulation in this fast growing investment area to weed out the shonky operators (which are in every industry)???
Hi Rob,
I would offer that in the main legislators are always playing catch up with any unethical people – while many people do the ‘right thing’ in all aspects of society, there are the few who want to test the generally accepted boundaries, and then there are those who will step over those generally accepted boundaries for their own ends.
In the normal cycle of events people step over the line first and then the legislators react. Off the top of my head a few examples would be elite athletes who take performance enhancing drugs, financial advisors who put their commissions ahead of the clients needs, ditto for the brokers who churn loans, pecuniary interest legislation in all levels of government, politician’s travel allowances and so on – in some respects the list is probably almost endless and would to some degree or other touch a great many occupations professions through their respective historical evolution.
I suspect in some ways wrapping will end up the same way – rightly or wrongly – legislators will step in to protect the naive from the vultures and while this happens the honourable wrappers and their learned/informed clients will largely continue to do business as they always have.
Hope that makes sense[exhappy]
Derek
derekjones1@bigpond.comProperty Investment Support Available. Ongoing and never stopping. PM welcome.
