Hi Elizabeth,

I have done a few wraps in Vic, I'm not an accountant but I'm happy to share my thoughts.

If you signed a wrap contract with your father it is most likely he would not pay CGT on the property. However, he would most likely pay income tax on the profits. If you wrote the contract so that there was no profit (ie you are simply covering costs), then you may be able to avoid this income tax also. I believe in NSW you would be eligible to receive the FHOG and/or avoid stamp duty as a first home buyer providing the price is under $500,000. (Check this with the OSR).

With a wrap your father would not be able to claim any expenses against his income as he would with a normal investment property, but as you would be meeting all the outgoings this would be of no real disadvantage to him.

An alternative would be to use a Lease Option contract. This would allow him to claim income tax losses, but as I mentioned these should be nil, as you will be paying all the expenses. If it is a lease option he may be liable for land tax, depending on what other property he owns. (Land tax would not apply if it was a wrap).

A lease option would have the added complictaion of the OSR charging stamp duty on the market value of the house when it is transfered to your name (ie in 5 years). This would most likely mean you pay more in stamp duty, possibly double!

So it is really six one way and half a dozen the other. I would suggest a wrap might work better. Just write it up so that the price you are buying it for is the same as the price he paid.

Definately get legal advice though. Like I said these are just my thoughts.
Hope it helps,
Greg

I have leased a car about 6 years ago through my employer and I personally wouldn’t do it again..

Since the top marginal tax rate back then was $50,000 it made a lot of sense.. But now the top tax rate kicks in at $150,000 and has been reduced to 45%.. You have to do your numbers and even with after tax contributions for FBT it may be marginal if worthwhile at all..

Check with your employer if you can get a fleet discount on new vehicles (They may have negoitiated this). Also ask if your employer will pass GST credits on to you.. This makes a big difference as you effectively don’t pay GST on the purchase price of a new car, the lease payments, petrol, maintenance etc..

Above all remember that just because you receive some tax benefit doesn’t necessarily mean it makes smart investment sense.. Many of my colleagues went and purchased $50k cars just because they could get big deductions.. But a few years later when they look at the depreciation that they have suffered they are bleeding..

My tip if you choose to go this path is choose a vehicle type NOT used by fleet companies (Government and rental companies).. Commodores and Falcons are worth dirt in 5 years.. Look at something like a Subaru or Mazda which generally will sell for a higher percentage of the purchase price even after a few years..

Be aware that the leasing company will build in adminisitration fees etc and the rate they charge for included petrol and tyres may not be competitive.. Negotiate the interest rate too!

Personally I chose a non-maintained lease, which doesn’t include any maintenace costs, fuel etc.. My company allows me to deduct them seperately from my pay (pre-tax) and this means I can shop around to get the best price..

Having said all that it is probably better than getting finance on a new car.. Especially if you travel more than 25,000 km each year as the FBT rate drops to 11%.. If you do less than 25,000 km per year (500km per week) then forget it – the FBT will kill you at 20%..

Hope that helps,
Greg

Hi Henry!

No matter what price range you are in the fundamentals are similar. Bottom line is you have to purchase the porperty at a good price in the first place. Personally I would consider wrapping below $200k to be a cheap house – especially these days.

Greg

A ‘Put & Call’ option is often used to shift the capital gains tax liability into a more favourable year.

CGT is based on the contract date – NOT the settlement date. So if I know that my income is going to be high this year and lower next year, then if I can choose I would prefer to pay CGT next year.

Often used in commercial and by developers a ‘Put & Call’ option essentially obliges each party to enter into a contract, possibly when defined conditions are met.

So in my case the option might say the option can not be excersied until after 1st July 2006 – thereby moving my CGT liabilty into the next finacial year.

The advantage is I have certainty NOW that the property is sold. Either myself (the seller) or the buyer can excise the option and force the other party to enter into the contract.

Cheers,
Greg

One of the legal experts can sort out whether I am on the right track here..

Despite most peoples belief ‘Title’ and ‘legal ownership’ are not strictly the same thing. When the contracts are signed and accepted you have a interest in the property, as an owner, even though you have not paid yet.

So you can’t sign the contract then run off and set up the trust before settlement. Here in Vic the SRO will hit you with a bill for double stamp duty if you try it.

The ATO could even have a look at you under Part IVa tax avoidance provisions if they deem you bought the property and then onsold it into a trust for the intent of avoiding tax.

Maybe the developer in WA is doing it differently as he may not sign the contract until the trust exists, although he knows the offer is accepted.

Any developer with a good accountant/lawyer will always setup a new company and trust for each new development project. At the end of the development they leave the trust holding no assets. If they want to keep a few apartments they transfer them to another holding entity to minimise lawsuits should something go wrong.

There is a story of a developer in Tasmania who didn’t do this and kept using the same trust to build and hold apartments. After a number of years one of the buildings developed serious problems and the new owners collectively sued him and as he had plenty of assets – he was cleaned out. Whoops.

Hope I am on the right track.
Greg