Forum Replies Created
All,
Found this link:
http://law.ato.gov.au/atolaw/view.htm?locid='TXR/TR20002/NAT/ATO'&PiT=99991231235958“21. Where a taxpayer makes repayments over and above the required minimum payment and the line of credit facility comprises one mixed purpose sub-account only, the taxpayer cannot choose to notionally allocate the repayments to a particular portion of the total debt, e.g., the non-income producing portion.”
In relation to the definition of “reasonable” used in BDO link, it refers to the level of detail and the method of the apportionment calculation:
“15. Where a taxpayer has a mixed purpose sub-account, the interest needs to be apportioned between the income producing and non-income producing purposes. Apportionment must be made on a fair and reasonable basis. One approach that we accept as fair and reasonable in relation to the apportionment of interest that has accrued on a daily basis on a mixed purpose account is set out in the following paragraphs. We accept that this approach to apportionment is not the only approach that is fair and reasonable.”I’m not aware of the term “tax contamination”
When it comes to tax law, it is best to seek clarification from the ATO and obtain a private ruling in advance. There is no value risking misinterpretation.
Thanks
KennyHi Michael,
Do you have authoritative literature to back up your comment:
“You can pay down the private debt independent of the investment debt regardless of whether it is in a single LoC or multiples, or a single SVR etc.”I have to say, it is not a simple scenario, so it is understandable that people get confused over these complex circumstances (I guess that’s how tax accountants / lawyers earn their pay)
I’m not an expert on the scenario mentioned, but my understand is that any repayment on the mixed purposed loan account will need to be apportioned between the private and income generating portion to a reasonable diligence. However, please correct me if I'm wrong.
I have not been able to dig up the relevant sections of ITAA. However, I have managed to find the following link: (which is a very good read I might add)
http://www.bdo.com.au/media-centre/m_r/qld/10_tax_return_mistakes_to_avoid
and in particular “Common mistake #4: Interest is interest is interest”Btw, I have enjoyed your contribution in this forum. Thanks
Regards,
KennyThank Ben,
Good luck with those properties.
KennyJohn,
Economics is a social science and no one can predict to a certainty of what is going to happen in 3 months time let alone 12 months.
It will be difficult to predict at this point in time, as there are several factors in play.
1, FHO Boost – will reduce/removed by the end of the year, reducing artificial demand
2, Demand of resource export – keeping unemployment rate low
3, Unemployment rate stablised – RBA will be unlikely to keep interest rate low -reducing affordibility
4, Housing affordability low – making the market risky
5, Net immigration/ Population growth – continue to remain high with demand of housing remains strong (both rent and buy)
6, Interest rate increase – potential for higher mortgage default esp with recent first home buyers.
7, Global GFC – if US goes into hyperinflation and economy crashes, this will form a ripple effect to the rest of the world.
Amongst many many other factors like tightening of credits, rental yield, etc)I don’t think there’s any doubt first home buyer will reduce by the start of next year (no 1 & 6), and there will be an increase of supply of houses (no 6). The question is if the demand from investors and the immigration/population growth be strong enough to fill the void. This will be dependent on the investment yield (Rental return, interest rate and affordability).
I personally don’t think there’s a boom coming until a couple of years (2011), nor will there be a crash in the foreseeable future (with the assumption of retail mortgage rate to peak around 7%-8% at the end of next year). I suspect property prices in major cities will continue with normal growth in line with inflation and house price index – as there will always be sufficient demand in major cities like Melb, Syd and BrisSo simply put, I agree with Jaffasoft – No, there will be no BOOM just around the corner.
(even though Melbourne has continuously shown over 80% of clearance rate, which is a technical boom, it is merely artificial. . It may be perceived as a boom by the public due to sensationalized media, but that will be short lived.)
Agreed that there are always buyer’s opportunity in every phase of the business cycle, just need to know where to look.Happy to discuss further.
KennyGreat idea, Richard! Well done!
Benhatter,
Local councils use different way of estimating land value. My experience is that local council tend to undervalue properties (ULV and Capital improved value) for rate calculation purposes. I won’t rely too much on these figures, especially when estimating the “value of the building”.
The important thing is to determine the condition of house yourself (photos can be deceiving). If it is for investment, what the rental yield are you able to achieve with the property at its current state. If it is for yourself, will you be comfortable living in it?If you don’t mind me asking, what states are these property in? They sound quite affordable.
Cheers,
KennyMccrills,
I think you will need to disclose a little bit more information in order to assist.
I don’t think it’s impossible to get into the property market with savings of $10K.
With the federal first home owners grant + federal first home owner boost + (if you are in victoria) state first home owner bonus + state regional bonus, eligible applicants can get up to $36,500 for new properties in the regional area in Victoria.However, I do agree with a saving history of 10K, it would be difficult to obtain a suitable loan – unless you have support from family in the form of guarantor. So i don’t think it’s absolutely impossible.
Again, more information is required
Cheers
KennyHi Jenny,
Thanks for that! Glad to know I’ve helped.
There are pros and cons with different structure when it comes to purchasing property investment, understanding the application and advantages will serve you well in your journey of property investment!
Personally, I have stayed away from serviced apartment and student accommodation myself, even though they give great guaranteed rental return.
With regards to books, I’m not sure if you have heard of Julia Hartman. She’s the resident tax expert for the “Property Investor” magazine. Apparently she has written a book “Saving Tax On Your Investment Property”. I have not read it yet, but I have been consistently impressed with her work. May be worth a look?
Best of luck
Kennynice one Dan42
Jenny,
1, Yes, you will only have to quote your ABN when you purchase a commercial property. It is not a necessity to have ABN or GST for residential IP. A simpler way to think about it – if your tenant is a business, you are likely to require ABN. (There are exceptions)
2, No, GST payable is dependent on your vendor, not you (ie, if your Vendor is a business registered for GST).
In any case, GST will be inclusive on the agreed price.3, I know it may sound confusing, however, you should think of it as 3 completely different entities.
a, Jenny – the individual, with TFN
b, Jenny – the sole trader, with ABN / GST (same TFN as Jenny the individual)
c, Jenny – the trustee of Jenny Family Trust (can register for separate TFN and ABN)You are can purchase residential property under any of the 3 entities.
When you purchase a residential IP with one entity, you are not required to cross link it with another entity, unless you need to be a guarantor (eg when you buy property with family trust, you will not be required to quote jenny the sole trader ABN, and you should not.
In this case, you are buying the property with the trust, which has nothing to do with Jenny the individual or the sole trader.
Think of you as an employee in a Company ABC, when you use the ABC’s money to buy a printer, you do not need to let them know Jenny’s sole trader ABN)It is not my intention to give personalised advice on this forum. While I would like to help as much as I can, you need to understand that accountants need to meet a certain level of duty of care, whether the advice given was paid for or not. Professional Accountants study many years to specialise in this field and charge a reasonable price to be compensated for that risk (amongst other factors). I will be doing these people and myself an injustice by giving out free personalised recommendations here, where you cannot ascertain if the advice given is reliable or not. I hope you can appreciate that.
So my recommendations is still, find yourself a good Tax accountant who is knowledgeable in Properties. Not only will they be able to answer your questions, they can be proactive in tax strategies and plan with you – while you concentrate on investing!
Do keep asking questions, and contribute with your investment experience here, but please address it to everyone, so everyone has a chance to contribute.
Cheers,
KennyThanks for the post, FinSpec
Congratulations! You’ve done very well!
Sounds like you are in control and understands your finances, maybe you can start using debt to your advantage! (if you haven’t done that already)
Keep up the good work!
Jenny,
Sorry, needed to clarify my previous answer regarding buying commercial property about Q1 and 2.
While you can purchase the serviced apartment with your own name (ie without ABN), however, if you cannot produce an ABN , you will be charged a higher withholding tax when your tenant pays you rent – to which you will need to claim back when you do your tax return. (similar to banks withholding interest if you don’t produce your TFN). So it maybe more efficient if you use ABN and registered for GST (if the lease contract contains GST).I suspect you will quote your ABN number in the contract of sale?
Cheers,
KennyPlease note that comments posted on this forum are of general nature. Please obtain appropriate professional advice before taking action.
Hi Jenny,
When you apply for an ABN, you have essentially created a different entity to yourself. However, since it is a Sole Trader, you don’t have the same treatment as a partnership or a Company. I won’t go into that, but you will be able to purchase the property under your name, or under the ABN. The difference is, under your name, if it is a negative gearing property, you will be entitled to claim the loss against your income. Where as under your sole trader ABN, it’s harder (you will need to pass tests), but it is easier to claim other tax deductions you otherwise would not be able to as an individual.
To answer your questions:
1&2, Not necessarily, you can buy it under your name as well.
3, Depends on the vendor. Of course you would prefer if the vendor is a business registered with GST. In that case, you will have to pay GST, but you can claim that back on your BAS.
4, Yes, similar to the hotel operator charges GST to people staying at the hotel. And you have to remit the GST back to the ATO via BAS.No, the answers will not be different. The only difference is the vendor. If the vendor is not a business registered with GST, they will not be charging you with GST on the purchase.
No, it can be under personal name.I’m not qualified to answer your questions about service apartments. But here’s my opinion:
Pros:
High rental return
Potentially guaranteed return (depending on lease agreement)Cons:
Hard to re-sell (only appealing to a portion of the market – investors)
Cannot be owner occupied
risk of high maintenance fee
low capital appreciation – you will see they probably have minimal growth2, see the cons above.
3, No, not appealing to the mass market.
4, Not sure. They are a serviced apartment, they are more inclined to resign the lease, otherwise they can’t produce income. However, the property is of no use to you, as there will be restriction on the usage of the property.Your questions are not simple ones. My recommendation is to find yourself a knowledgeable and proactive accountant, as opposed to relying on the bits and pieces on a public forum. I know it’s a little bit costly, and sometimes it’s a bit hard to ask the right questions. However, it will save you a lot of tears, time and money at the end!
Thanks
KennyPlease note that comments posted on this forum are of general nature. Please obtain appropriate professional advice before taking action.
Agree with Dan42, unless of course you can demonstrate nexus (connection/relationship) of the LOC loan to an income generating activity (not hobby or private nature). (eg, you used it for deposit for an investment property)
Interesting that you still have a LOC loan when the security asset has been sold off?!
Hi all,
I’m based in Melbourne.
Had a look at Frankston about 2 years ago, but it was a bit too expensive for me to drive all the way to frankston to inspect houses on a weekly basis (40-45km from cbd), so that was abandoned.
As Sophieh suggested, I would avoid Frankston North, even though the properties are cheaper.
There are some great houses in Frankston and Frankston South, on the beach side of the freeway.
Frankston has been reported many many times as the next upcoming suburb, has the x factor, the next brighton. That didn’t happen even with the East Link in operation and i see little indication that capitalising in the near future. That’s probably due to the stigma that comes with the suburb. (you can check the suburb profile http://www.domain.com.au/public/suburbprofile.aspx?searchTerm=Frankston&mode=research )Having said that, I dont think it’s really all that bad as other people make it out to be. If you can get something close to the beach, and didn’t have to spend too much money on it, you can’t go too wrong. (There are many million dollar mansion along the beach)
Good luck
K.Hi Bjsaust,
I won’t comment too much on the structure. There are obviously pros and cons in terms of a JV with a builder. However, do make sure this builder is qualified and registered with the appropriate authority. (and have insurance).
That’s the typical quote: 10-15k a sq. I would’ve thought the builder can give you a more realistic quote?
I’m not sure how long a planning permit lasts in other states, but Victorian’s are normally 2 years, and you can extend it for 12 months at a time (with a fee). Have you check with the planning department if the permit still stands?I would have 10-15% of the project cost. But again, this just needs to be available when called upon.
It is not just the construction that can go haywire.Good luck!
KennyHi bjsaust,
Just a few comments on your expenses:
– you have not included any borrowing expenses (assuming you will be borrowing to finance your construction, and even if you don’t, you should build in the opportunity cost – eg, the interest rate of that money in the bank) Construction can be around 6 -12 months depending on the builder, and selling can be 3-6 months depending on the market. 236K @ 6% is around $1200 a month.– What is the “other consultants” cost of $4K? or is it a contingency? Or independent inspectors to validate the building work at each stage? They should be around $1000-1500.
– $175K total construction cost is very excess for something that sells for 240K (That’s a huge 73%!! any construction project that does not give you 15-20% return, you should really think long and hard about doing it or not). Focus on reducing that or increasing the selling price if you want to make it work. (unless some of the cost will increase your selling price of the front block?!) Don’t artificially inflate the sell price though.
Does this include dressing/interior decorating the property for sale?– Contingency of $15K is very risky. I know you don’t necessarily need to build it into your feasibility analysis, especially if you are experienced. But construction projects are notorious for blowing out budget and timeline – but you probably know that already.
As it stands, however, doesn’t look like it’s stacking up in terms of numbers.
Have you investigated the targeted market?! There’s no point spending extra money to build a mansion if the price ceiling is going to be $240K.
The risk of building the wrong product, is that you risk the property missed mass market and sit stale for a long time!
There are cases where numbers just don’t stack up, but you have many different options. (eg, do council plan/permit and sell the block at a premium >65K)Good luck
K.Hi Nathan,
You can also get the Vendor’s name and last registered address through a Title Search (cost $5-10, so it may become costly after a while).
The local council will have that information, but there will be limited circumstance when they will give that information to you. (eg, if you are the neighbour and you need to contact the owner in order to fix up the fence)Hope that helps.
KennyHi PE,
I'm not sure how financially savvy you are, but a more systematic way of assessing the different options would be to do a simple cost benefit analysis (or more sophisticated NPV). These are some of the techniques used by business to appraise long term projects in terms of their profitability and feasibility – as finance is a scarce commodity, they want to make sure they get the maximum return and minimum opportunity cost (trade off)
Essentially, that should be no different to you, as it is an important business decision. Personally, I find different location will produce a different outcome. Some location will have higher unit sale price (hence you would build), some location demand quality units (which increases cost, so you may plan and sell land). You really have to know your market and targeted buyers.For more information:
Cost Benefit Analysis
http://en.wikipedia.org/wiki/Cost-benefit_analysisNet Present Value:
http://en.wikipedia.org/wiki/Net_present_valueGood luck
Kenny
