Forum Replies Created
Inna,
If you can trust each other why not just put your parents side 100% in their name. As your parents are living there they can exempt their side of the property from CGT which can help all of you. If it was 75:25 only 75% their property would be exempt from CGT, could be sad if they needed to sell and move into a Retirement home the tax man would be taking part of the inflation increase in the value and they may not have enough to buy into the retirment home.
Julia
Kramer,
Being close enough to talk to your accountant in person at crucial times is important as that is the best way to communicate. But this may only happen once or twice a year. I have clients all over Australia as most of the time e-mail, post and phone work ok otherwise they like to be able to claim a deduction for a trip to the Sunshine Coast anyway.Regardless of what you decide please make full use of our web site for booklets and twice monthly newflashes etc. http://www.bantacs.com.au
Julia
Ian,
I am a Qld accountant but on Bribie Island Rd. If you send me your e-mail address I will send you my free rental property booklet.Yack,
Sorry on re reading my reply I can see that the start is confusing. What I am saying in the first paragraph is the point I am making does not apply to properties only held in your name so I am only talking about a strategy you should use when you are in a position to purchase a rental property in joint names.You are quiet right to question how you can set up a family trust with properties purchased in your name. First of all you would have a huge stamp duty cost and the trust cannot distribute the losses to you so you would loose the benefit of negative gearing.
The strategy I suggested for a jointly owned property involves you salary sacrificing the cash flow rental expenses as an exempt fringe benefit. This will reduce your taxable income then both you and your spouse receive half the rent and claim half the depreciation each. The high income earner gets all of the expenses but only half the rent. The otherwise deductible rule that exempts the benefit from FBT applies regardless of whether the expense would have been deductible to you or your spouse.
Go to http://WWW.bantacs.com.au there is a calculator and detailed explanation. I know it is not an easy concept but it works and there is an ATO private ruling verifying this.Julia
Yack,
This strategy will not work for the properties that you already own in your name only, but can I suggest that you buy your next property in joint names with your wife. If the property is negatively geared you can salary sacrfice to negatively gear it even further in your name and possitively gear it in on your wife’s side. If it is possitively geared you can use salary sacrifice to effectively negatively gear it in your name and possitively gear it in your wife’s. This arrangement would allow you to effectively transfer more income to your wife than a management fee and any CGT could still be split equally.
There is a calculator on http://www.bantacs.com.au that will show you how this works. But note your wife may lose her Part B entitlement if you have children on the otherhand it may increase your part A entitlement as there is no rental loss in your tax return that is added back.Julia
Fullout,
A hybrid trust is a combination of unit and discretionary trust. These should only be used in very particular situations. They are not the solution for every circumstance. Personally I don’t recommend using them at all unless you have an ATO ruling. One of the main purposes of these arrangements is to get the negative gearing benefits accross to the high income earner and the CGT to the low income earner or when the property becomes possitively geared directing that to the low income earner.
An alternative plan that does not have the set up and ongoing costs is to own the property jointly between a low and high income earner. Then the high income earner salary sacrifces the cashflow expenses of the property so all the low income earner has is half the rent, half the deprn and half the CGT. Under these circumstances it is very unlikely that the rental property will ever be anything other than negatively geared to the high income earner. Further as the rental expenses are otherwise deductible no FBT is payable and it is not reportable on the PAYG summary. This doesn’t give you quiet as good a result as the Hybrids but it is supported by legislation, a case and an ATO ruling. For full details and a calculator go to http://www.bantacs.com.auJulia
Kramer,
I am a QLD accountant about an hour north of you on Bribie Island Road. I have sent an article I have written on business structures to your e-mail address but please don’t take that as your only option. It all depends on your particular circumstances. There are also benefits in hold the properties in just joint names and a lot less overhead costs. An example of these benefits would be if you and your wife were in different tax brackets and the high income earner salary sacrificed all of the cashflow expenses of the property. As the otherwise deductible rule would apply no FBT is payable and it does not appear in the Reportable FBT box on the payg summary. Then each member of the couple just puts their share of the rental and depreciation in their tax returns and when the property is sold they split the CGT equally. This effective makes the property considerably negatively geared to the high income earner and possitively geared to the low income earner. Can save thousands in tax each year. http://www.bantacs.com.au has a calculator to work this out and a full explaination.
Julia
Dave,
Sorry trouble with our e-mails because of our new website going on line. Will send you the booklet when I can send out again. In the meantime our site is http://www.bantacs.com.au if you want to look for any other booklets etc. The site is still in development but you should be able to access the booklets.
Julia
Nazza,
Crunching the numbers for each possible outcome will give you an idea of which is the most likely. It will involve some guess work but after working through a few scenarios you may see a trend. A lot depends on your holding time and how long it will be negatively geared.
There is a way to have a resonable each way bet which is extremely flexible when the low income earner becomes the high income earner as well as being an excellent method of shifting deductions to the high income earner and income to the low income earner. It is based on a 1993 case NAB v FCT. Bascially the FBT act creates a “legal fiction” that the expenses of an employee’s spouse are the employee’s so if they were deductible to the employee’s spouse the otherwise deductible rule applies to make them an exempt Fringe Benefit. An example of how this would work in your case would be that you buy the property in joint names but your spouse salary sacrifices all the cash flow expenses. Then each of you only include in your income tax returns the rent, depreciation, amortised borrowing expenses and maybe some travel km method. When your spouse leaves work you arrange to do the salary sacrifice in your name, then change back when your spouse returns to work. It is brilliantly flexible but hard to get your employer to cooperate because they are frightened that the ATO will come back onto them. Your employer can get an ATO ruling to put his or her mind at rest. Guidelines on how to get this ruling and a calculator to work out how much tax you will save are at http://www.bantacs.com.au This concept works for both negatively and positively geared properties.
As the property is held in Joint names you don’t have to worry about a property settlement dispute and the CGT is still split equally.Julia
Tools,
Any repayments are pro rataed unless the funds are from the sale of one of the investments you borrowed for. ATO ruling TR2000/2
I have a free booklet on claimable loans. If you are interested send me your e-mail address.
Steve,
Whether the interest is deductible is determined by what the money borrowed was used to buy and this needs to be traced through any refinancing so the interest on the portion of a loan that was used to buy or refinance a loan that was used to buy a property that is now income producing will be deductible. The trouble with a LOC is the way the ATO attribute the draw downs and repayments if part of it is private. Refer the paragraph “dangerous”. This problem can be solved by split loans so you can direct payments specifically or use an offset account.
Borrow from the country offering you the lowest interest rates. Usually it is the country where the property is that has the taxing rights but:
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.The income is not taxable in Australia because you are OS for more than 90 days but it must be included in your Australian tax return as exempt foriegn income as it will detirmine the tax threshold your Australian income will be pushed into.
Actube,
No rollover relief on investment properties in Australia. The only rollover relief is available to active assets of a business and it specifically excludes assets that have been used to produce rental income section 152-40(4)(e).
Karan,
No rollover relief on investment properties in Australia. The only rollover relief is available to active assets of a business and it specifically excludes assets that have been used to produce rental income section 152-40(4)(e).
HappyBandit,
No rollover relief on investment properties in Australia. The only rollover relief is available to active assets of a business and it specifically excludes assets that have been used to produce rental income section 152-40(4)(e).
