SeanOlivia,
You cannot exempt a house as your PPR until you at least move into it. The only exemption is if you are renovating it and then move in for at least 3 months. Renting it out from the time of purchase will always mean that you will have a portion of the capital gain subject to tax. Once you move in & establish your PPR as per TD51 you can move out again and exempt the house for up to 6 years, move back in and get another 6 years etc but you can never exempt it 100% if you have rented it out when you first purchased it. Note when playing the 6 year game you cannot exempt the house you are living in as a PPR if you want to exempt the house you are renting.
Note this reply is only from a CGT point of view.

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JLtara,
I am an accountant in Queensland so not a lot of help to you but the following article will give you the low down on the tax consiquences of wraps:
If the Vendor Finance arrangement has the following features the income stream received, once the wrap arrangement has begun, is considered to be principle and interest by the ATO. The income stream received before the wrap arrangement is entered into is considered rent. Reference ID2003/968.
Typical Features of a Wrap (Vendor Finance Arrangement)
1) The purchaser pays a deposit at the time of entering into the arrangement.
2) The settlement (change of the title deed to the purchaser) does not take place for several years after the arrangement is entered into.
3) The purchaser has the right to occupy the property prior to settlement
4) The purchaser pays a weekly amount (regardless of the name it is given in the arrangement) for the right to occupy the property
5) As part of the arrangement the purchaser pays the rates, taxes and insurances on the property.
6) The balance of the purchase price to be paid on settlement of the arrangement is reduced by the weekly instalments.
7) If the purchaser fails to complete the arrangement the deposit and weekly instalments are forfeited.

Now what about the profit on the sale of the property? Is that normal income or capital gain and when is it taxable? Assuming an agreement similar to that described above the answer to this question revolves around whether the vendor is in the business of selling houses or an investor just realising an investment. The key issues in differentiating here, according to ID2004/25, 26 & 27 are:
1) The Vendor did not use the property for any other purpose than to enter into the wrap. A straight rental of a property before entering into a wrap arrangement would avoid this point.
2) The property was sold at a profit
3) The wrap arrangement was entered into within 6 months of the vendor purchasing the property.
4) The Vendor is in the business of purchasing properties to resell. It would be difficult for the ATO to argue this case if the Vendor only bought and sold one property.

If you are caught by all of the above then CGT cannot apply to the sale of the property as the profit on the sale is revenue in nature. If a transaction is caught as income, CGT does not apply or in other words CGT is the last option if income tax doesn’t catch it. But even if you weren’t caught by the above and CGT applied there would be no discount if the property was held for under 12 months. If you did hold the property for less than 12 months before entering into the wrap it is better to argue that you are in business and caught by the above because the profit on sale would be revenue in nature and as a result not assessable until settlement which could be 25 years away (ID2004/27). If you hold the property for less than 12 months but it is subject to CGT you don’t qualify for the discount but would be assessable on the profit when entering into the wrap.
Section 104-15(1) of ITAA 1997 states that a CGT event happens when the owner of a property enters into an arrangement with another party to allow them to live in the property and title may transfer at the end of the arrangement. Section 104-10(3) states that the time the CGT event happens is the time of entering into a contract for the disposal of the asset, not when settlement (title passes) takes place.
For example this means that the vendor who enters into a wrap on a property that has been previously used as a rental and held for more than 6 months will be subject to CGT on the property in the financial year the wrap agreement is entered into. Accordingly, if at this stage the property has not been held for 12 months no CGT discount will be available even if they eventually end up holding the property for 25 years under the arrangement.

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Flash,

The ATO has just issued a discussion paper on this matter. It is available on their web site and has a very detailed list.

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Alright Wallflower I’ll bite. Just where has the house gone, that Steve says is trading stock, if there is nothing left to sell?

Julia

It does not matter whether the property is residential or commerical the CGT 50% discount applies if the property is held for more than 12 months and is not held in the name of a company. Accordingly, any depreciation reduction in the cost base only has half the effect. If you have a commercial property that is being used in your business you may also qualify for the 50% active asset CGT discount in addition to the normal 50% CGT Discount.

Julia

My View:
Purchasers of Rental Properties can blow their budget by relying on incorrect depreciation calculations.
Property Owners expecting to receive a large tax refund cheque to help fund the costs of the rental property are quiet often disappointed to find out the information provided by a Developer or Quantity Surveyor is not correct. Mind you it is not an easy task to break down these costs. Light fittings are a typical example. If a light fitting simply hangs off a light globe its cost can be written off over 5 years as plant and equipment but if it is fixed to the ceiling it becomes part of the building. Being caught as part of the building means at best its original cost can be written off over 25 years, normally it is 40 years and in some cases no write off is permitted at all.
The ATO has issued a draft ruling that contains 7 pages of applicable items and dissects them between being part of the building or qualifying as plant and equipment. It also contains recommended life expectancies for items that qualify as plant and equipment. From a tax agents point of view I welcome the clarification.
Property investors have been concerned that the ruling will reduce their tax deductions. But in many cases it provides investors with a better tax deduction than stated in previous rulings. For example it recommends that Stoves and Hot Water Systems be written off over 12 years instead of 20 years previously. It also moves wall ovens out of the building write off and into plant and equipment. There are parts of the draft that contradict case law so I suspect the final ruling will differ. Nevertheless there is not a lot to fear in it. Further the effective lives for plant and equipment are recommendations. If you can justify a different life you are entitled to use it. The discussion paper will only affect items purchased after 1st July, 2004

References:
Wimpy International v Warland 1989
ID 2002/1015
IT 242
TR 2000/18C5
Subsection 262A (4AJA)
TR 97/25

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With Regard to the building write off mentioned above don’t just assume a 2.5% pa 40 year write off There are many ways your property could qualify for 4% write off but as this only allows it to be depreciated over 25 years since construction it may not work in your favour if the building is getting on.
The benefit is in the detail for example.
Residential properties on which construction first commenced after 18th July, 1985 and before 16th September, 1987 are entitled to be depreciated at 4% per annum.
Commercial buildings constructed after 26th February, 1992 will qualify for the 4% depreciation rate if they are “used mainly for certain Industrial activities or amenities or offices for workers and supervisors involved in industrial activities.” The Industrial activities are:
1) The manufacturing of items or storage of manufactured items.
2) Processing of primary products
3) Printing, lithographing and engraving.
4) Preparation of foodstuffs in a factory or brewery.
5) Activities associated with the above such as packaging and cleaning.
On Commercial buildings started before 16th September 1987 and after 21st August, 1984 a write off of 4% pa is allowed. .
Buildings constructed after 26th February, 1992 can be depreciated at 4% if they are used as a motel, hotel, guesthouse or short term traveller accommodation providing there is at least 10 bedrooms or apartments.
The building costs must be determined by the original documentation or a quantity surveyor’s report.
Before you spend money on a quantity surveyor make sure you have exhausted all other means. The ATO will not permit you to use the quantity surveyor’s report for building depreciation if you can ascertain the original cost by other means. The seller of a property is required by law to provide you with the original information. You should also find out if the original owner was a professional builder or owner builder as the building depreciation calculation cannot include his or her labour or profit.

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I cannot advise you on the tax laws of other countries but if you invest via a structure other than your own name you will miss out on the following:
Overseas Rental Properties
Newsflash 61
In ID2002/764 the ATO clearly states that, from 1st July, 2001 Section 160AFD allows the interest, borrowing costs etc. on an overseas rental property to be offset against Australian income to the extent that it exceeds the overseas rent received.
Note this is rental income after the deduction of other expenses such as rates, insurance and repairs. Providing they do not exceed the total amount of rent received. If the rates, insurance and repairs exceed the rent received the balance is carried forward to be offset against future foreign income and the interest is fully deductible against Australian Income.

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try http://www.bantacs.com.au but no forum yet.

Who Says You Can’t Buy Positive Cashflow Properties?

I’m not talking about buying way out in a mining town. My example is based on typical properties in one of our fastest growing shires, Caboolture. The only catch is you need to be a high income earner whose employer will allow you to salary sacrifice. The following is based on a couple where the high income earner earns $80,000pa and the low income earner has no other income than the rent. They own the property jointly.
House $230,000 Rent $210pw:
Income $210 x 52 = $10,920 Assume: Bldg Deprn $130,000 x 2.5% $3,250
Less Cash Flow Expenses: Plant & Equipment Deprn 700
Rates $1,600
Interest $230,000 x 6.5% 14,950
R&M 500 Tax & Medicare on $80,000 $24,407
Insurance 400 17,450 Tax & Medicare after introducing the
Out of Pocket 6,530 rental property & salary sacrificing the
cashflow expenses. 17,843
Less Tax Reduction 6,564 6,564
Positive Cash Flow 34

Go to http://www.bantacs.com.au for a calculator that will allow you to work out your particular circumstances.