Forum Replies Created
Hello Hardyard28
It’s possible that I have totally misunderstood your question in which case I’m sorry, but it seems to me that you are confusing income and capital gains.
Cash Flow positive or CF negative (also refered to as positive or negative gearing) refers to whether the income from your property ( rent ) is more or less than all your expenses ( e.g. interest on loan, rates, water, insurance etc) for the property.
If it’s more (CF +), then this extra income (profit) just gets added to your other income at the end of the tax year and you pay tax on it at your normal rate.
If it’s less (CF- ) then this loss gets subtracted from your normal income thus saving you some tax.
You always declare the income ( profit or loss) from your property to the ATO. It’s illegal not to.
Capital Gains Tax (CGT) is a different sort of tax which only needs to be paid when you sell the property. It normally does not apply to a PPOR but since you will be using part of your PPOR as an IP, then, for that part, CGT will apply.
The percentage to which CGT will apply will depend on several factors and is something better explained by your accountant. You might also like to go to the ATO site where it is explained with examples.
If you keep an IP for more than 12 months then you get a 50% discount on your capital gain. The rate of tax you pay for “the other 50%” is dependent on your top income bracket, as it just gets added to your normal income for that year. It’s not a fixed rate.
Again, if I misunderstood you I’m sorry for this simplistic answer.
Just trying to help.Elka
Hello Derek
I saw that this is not your example of leveraging but don’t you think it’s a little incorrect /incomplete?
Ignoring the obvious that you don’t get to keep all your rent as you need to pay all expenses first. (PM fees, repairs, rates, water, land tax, insurance etc. ) you still need to point out that the shortfall between your rental income and your main expense, which is interest, needs to be covered from other income eg. your salary.
Anyway, the point I am trying to make is that in this example at 90%LVR your not in front by $77K but by $54K (77K – 23K interest paid from else where)
At 80%LVR your not in front by $42K but by $34 ($42k – $8k interest paid from elsewhere, which may be easier to handle)
However, of cause I agree that the leveraged approach is the best way to go.
I was just concerned that any new investors reading this example out of context of the book may think that they have found a money tree.
Cheers Elka
Hello All
Very interesting thread.
Terry, your explination of Hybrid DT’s and their use and structure is the easiest to understand that I have ever read. Thank you.
This leads me to my questions.
If the IP being held in the DT is CF+ from day 1, is there any other reason to create a hybrid DT rather than an ordinary DT?
Is it possible to convert a normal DT into a hybrid DT one day if the need arises or is this dependent on the trust document?
I just read the bit about “not poisoning your property” on Chris Battens site. Now my head hurts. [worried]
Elka
Hello MaiA
Congratulations. Sounds like a very satisfying deal for you.
Can I ask you. Did you market the property via an estate agent?. I am just curious how you managed to sell it in 2 weeks whereas the original owner had had no luck selling it. Where did he have it advertised?
Cheers
ElkaHi Milly
If your renting room by room (i.e. it’s not a group of 4 friends renting together) then don’t forget to factor in the gas, electricity, water and 1 x week cleaning of common areas into the price. If you pay these it will save a lot of trouble amoung the tenants. You will of cause have to keep track of usage to make sure it stays reasonable.
I don’t know if your anywhere near a college or Uni but if so foreign students would be a good market.
Cheers Elka
Hello Graham3
There was athread on this topic just recently. Here is the link.
https://www.propertyinvesting.com/forum/topic/23233.html
Cheers Elka
Hello ptn
Thank you for the information.
Yes, I was also fast coming to the conclusion that forming several DTs and just paying the surcharge was still the cheapest solution.
Although asdf has already given some figures for this, I will still be asking my accountant about the cost of setting up and then maintaining each DT as soon as he gets back from holidays. I guess the cut off land value for each DT is also dependant on the cost of the DT. Will let you know
Interesting about the CBD appartments.
Dazzling, you never posted the outcome of your disagreement with SRO regarding various percentage ownerships. Is it still pending?
Cheers
ElkaThat’s true of income tax and CGT Cata but they make you pay land tax even if your losing money. [grrr]
Dazzling has the only real answer. Make your tenants pay it, which is what happens with commercial property.
Cheers
ElkaSorry ptn, forgot to add the following.
“My brother inlaw reckons that the SRO finds CBD apartments too complicated to calculate Land Tax implication.”
I don’t believe that your brother in law is correct though it would be nice if he was. [hair2]
I think it is 1 of 3 possibilities.
1. The land value of this property is less than the tax free threashold ( which was $175K and is now $200K ) and this is the only property under your name, except for your PPOR.
2. The SRO thinks that it is your PPOR and thus LT excempt.
If this is the only property under your name then you would not receive a land tax notice. If you have more properties then you should receive a notice and this property should be marked as your PPOR.3. You recieve a LT notice under your name but this property is not listed at all. In this case you have just slipped through the cracks. Normally, at settlement ,whoever did your conveyancing would have notified the SRO of the transfer. Somehow this has not been noted correctly. However, the bad news is is that it’s your responsibility to notify them of this. Read the fine print at the back of the LT notice.
This happened to 1 of my properties and I had sleepless nights wondering what to do. My innate honesty ( coupled with my fear of one day being charged for back years and fined penalties to boot) made me notify them of this mistake. As a reward for my honesty I am allowed to pay much much more LT. [glum]
Just thought I’d warn you. Do whatever is best for you.
Cheers
ElkaHi ptn
I am no accountant but having been to a “Land Tax, The new Regime” lecture held by my accountants office recently, while on a flying visit to Oz to see my family, I will try and answer your last post.
Firstly, if you currently have a DT holding property I suggest that you get in touch with your accountant URGENTLY. Actually he should have been in touch with you. See my first post.
If you now buy property under the structure you suggested then it does not matter who the directors are. ( Actually it never mattered who the directors were. )
Each DT will pay land tax seperately (which is how it has always done) but will now always be charged the surcharge on top of the normal land tax. The surcharge is 0.375% on top of the normal rate for that bracket..
Note that the tax free threashold is now $200k. in Vict.
So for example
DT#1 has land totaling $199k.
(It doesn’t matter if this is 1 property or the aggregate of all the properties held by this DT.)
No land tax is payable as it is under the tax free threashold but you do have to pay the surcharge which in this case would be $746.25
DT#2 has land totaling $540,000
Normal land tax on this would be $880 but you will have to pay the surcharge of $1,825 making it a total of $2,705.
This only gets worse the higher the aggregate value is. The good news is that at $2.7M and over, having paid $36,330 LT, there is no surcharge. [hmm] [lmao]
Believe it or not there are some scenarios that it’s cheaper to pay the surcharge but that’s too long for this post.. I assume if you go to the SRO site you will be able to find the new rates.
Remember the adage that a little knowledge ( i.e. mine )is a dangerous thing and go to a good property savvy accountant. for advise.
I hope I have not depressed you too much.
Elka
Thank you everyone for your reponses at last. [exhappy]
For those who haven’t found it here is a link to the thread that you where refering to Dazzling.
https://www.propertyinvesting.com/forum/topic/19858.html?SearchTerms=land,tax
I am still mulling over it. [confused2]
Be well
ElkaHello ptn.
Glad to hear from someone. [smiling]
I have also been checking this post eagerly and I’m surprised …… and disappointed.
After 6 days, not only is yours the only post, but relatively few people have even read the topic.
Is this because :-
1. Land tax is a dirty word (or 2) on this forum?. [blush2]
2. Everyone has put it into the “too hard†basket?.
3. Or… no one sees this as a problem, in which case what am I missing ?I have always bought negatively geared properties with good capital growth potential but
about a month ago I bought both of Steves books about CF+ properties (0 – 130 and $1M in props in 1 yr.) and literally devoured them. That is how I came to this site.Since then I am continuing my education before I jump into buying more (hopefully CF+) properties. I’m always shocked at the size of my land tax bill. With the change re land tax for DT’s and unit trusts in Vic. it’s just made things worse.
I will start the ball rolling.
1. Split your investment properties over different states and /or countries ?. This is logical but hard to do for me. I only know the Melbourne market and buying from overseas it’s hard enough buying in an area I know.
2. Have different DT for every property. This way you always pay the surcharge but it’s still cheaper then if you have to pay on the aggregate of all your properties.?Anyone willing to help please? Specially with the 2 questions in my first post.
Elka
[
Yes you are correct, the contract is subject to finance, building and pest inspections. The settlement agent takes care of the conveyancing from what I gather. The contract of sale will be forwarded to us on Tuesday to be submitted to the bank. I’m just unsure at what point we sign the contract …I’m guessing we sign after the building and pest inspections come back fine and the finance is approved .. we sign and forward back to the settlement agent ..
Normally the sales contract would have been signed by both parties at the time that your offer was accepted. The “subject to ” clauses are your protection.
I’m a little confused. Are you getting the loan from an instiution in th e UK?
I would also think that you would need to send the sales contract back to the sellers real estate agent and not your settlement agent.
Hope this is not confusing you more.
ElkaHello FBH
Is your sales contract subjest to finance and building and pest inspection or only finace. If it’s only subject to finance and you are unsure of the state of the property, you may want to have the inspection done asap so that you can maybe influence the loan application if you find the property is not up to standard. [whistle]
Not sure that’s legal though.I’m not sure what a settlement agent is but I have a solicitor in Melbourne and when I buy a property I just put my solicitor, the sellers real estate agent and my lenders contact (someone who is dealing with the loan at the bank) in touch with each other. They then get whatever they need from each other directly.
Once the loan is approved (and the building inspection is OK, if that’s also a condition) the solicitor will do all the checking etc. and when the time comes all 3 will get together and settle. You don’t need to be present.
I just keep everyone on track via emails. [biggrin]
As far as the sales contract goes I’m a bit surprised that the sellers agent hasn’t mailed it to you to sign yet.
Hope this helps
ElkaThanks Cata. When you put it like that it seems obvious. [blush2]
So DT’s are the only way to go ?… except for the hefty land tax surcharge in Vict? Any other options available?
Elka
Thank you Audrey for your reply. However I have to agree with Qlds007. I don’t see the point of a honeymoon period myself unless your really tight for cash and need that little bit extra to help pay for some of the expenses of buying and then moving to a new house.
Richard do you have the name of a lender who allows you to have a 100% offset aaccount on a fixed rate product in Melb please.
[offtopic] I don’t have a fiance. My husband would object. [biggrin]
Cheers
ElkaHello Qlds007
I didn’t know that. Thank you for the info. Can you give me a clue as to who provides this in Melb?
My niece is looking to buy herself a place to live in and is asking me which loan she should take out. I was thinking that 3 yr fixed and then variable might be the way to go.
Would value your opinion.
ElkaHello BillyT
I came across this the other day. It’s basic but interesting. There is also a seminar being held entitled “How to get started in Commercial property” . Not at all expensive ca$56 I think.
http://www.propertyupdate.com.au/articles/49/1/Residential-Or-Commercial—Which-is-right-for-you%3F
Hope this helps
ElkaI don’t know if this hypothatical loan is in fact a reality already but if not or if the facility expists in the loan, you might want to think about an offset account instead.
That way you could put both pay packets into this account and each dollar that stays there, even for a few days, saves you interest (assuming variable loan).
Cheers
ElkaHello Snowflake.
Do it now, before you have new tenants.
Firstly it’s unreasonable to expect the tenant to live with a renovation mess and secondly you will be able to get a better rental after the reno.
As it’s an investment property it doesn’t matter whether there is a tenant in place or not at the time of the repair/reno. as far as tax deduction/depreciation is concerned.
However, it might be a help to talk to your accountant to see what can be done under the heading of “repair” as opposed to “improvement” (which will be depreciated as opposed to deducted in the one year).
Maybe you can read the booklet entitled “Rental Properties Booklet” at the following link . It has a section which talks about the difference between the two.
http://www.bantacs.com.au/booklets.php
Hope this helps
Elka
