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Thank you both for your responses. I have emailed my builder as per your suggestion crashy and will see what he thinks.
Cheers
Elka
Hello sjordan
I don't know which state you are in but here is a link with the addresses of all the state revenue offices.
You might like to read about stamp duty and land tax. Please note that your home (PPOR = primary place of residence) is land tax excempt.http://www.ato.gov.au/corporate/content.asp?doc=/content/8792.htm
This page is on the Aust. tax office site which is definately a good source of information.
These are two reasons why the RIA (justly) complains about the taxes on property.
The other two are GST ( goods and services tax. I think like your VAT?)
and CGT (capital gains tax) which, although not land/property specific, certainly effect the price of properties. You can read about them on the ATO siteHowever, council rates are reasonable and are used to pay for things like parks and facilities within parks, infrastructure repairs, drainage repairs and improvements, rubbish collection etc.
Hope this helps
ElkaHello MArcus10
Nice problem to have.
Your PPOR debt is certainly the killer as I guess you are paying out around $4K per month on it and none of it is tax deductible. Of cause an option you haven't mentioned would be to move out of your home and rent much cheaper elsewhere in which case you would not only have the rent to help pay the mortgage but all expenses would be tax deductible including interest and depreciation. Doing this for up to 6 years would still keep it CGT free.
However, I don't know your situation, age, kids etc. and that's a very emotional decision which only you can make.
However, looking at the question you asked I don't think it's primarily a matter of looking at "what should I sell which reduces the most debt". What I mean is that it's not just a numbers game.
I think it would be a case of going back to the reasons you bought the property in the first place and then seeing if it has performed as expected and what you believe it's going to do in the future. Then dispose of the ones that have not performed or have reached their full potential for the forseeable future.
What was the purpose of the land. Were you going to build for investment? If so, is it no longer profitable?
By my calculation if you sell the land you can clear most of your PPOR debt though the CGT bill will be hefty I assume.
( It may be worth your while getting some advice about both of you making a tax deductible contribution to your super to reduce your tax bill. Better in super than in the govt. coffers. It depends on your other income of cause.)I assume IP3 is your latest buy. Is the reason you bought it no longer valid?
Unless you see no future in IP1 and IP2 any more why would you sell these?. Do you no longer see capital growth in the properties? If you've reduced your monthly PPOR mortgage repayments to about $1K – $1.5K then $300/mnth to carry the properties should not be a problem. I really don't see any reason to sell those except underperformance. If you sell the blocks of land you will have enough equity in your PPOR to borrow aginst it for further investing anyway.
Just my thoughts
ElkaHello simpsd
Yes definately get a depreciation schedule done. With a new place the deductions will be considerable.
While your renting it out all expenses will be tax deductible including interest on loan, insurances, rates, water, management fees etc.
Make sure you take out landlords insurance also.
If you come back to your home before 6 years are up, it will stay CGT free.
Have fun in London
ElkaHello jc1979
I think your friend misunderstood his accountant.
Alternatively, it could be a case of broken telephone. You know, it's that game where you sit around in a circle and someone whispers a sentence into the ear of the person next to them who then repeats it to the person next to them and so forth until you get to the person who originated the sentence. The fun part is hearing the original sentence and then hearing what it has become.
But to get to your question. To avoid paying CGT you need to
a) not currently own your own home
b) buy a property which you intend to have as an IP
c) move into it before you rent it out and establish it as you PPOR (home)Then you can move out and rent it for up to 6 years without having to pay CGT if you sell.
This will only work if you do not buy another property as your PPOR for that period.What is sweeter is that if you move back into the property within the 6 year period then move out and rent it, the six years starts again.
I'm not an accountant so your friend should go back to his for clarification, just to be on the safe side.
Hope this helps
Elka
