Forum Replies Created
To confirm
If the income is input taxed then you cannot claim GST on the expenses incurred in earning that income.
Residential rents are input taxed.
It may be possible that someone is running a business from a residential property, and not residing there. (Did that myself a few years back). In this case rent could include GST and all expenses GST claimed back if the landlord is registered. (Again, income needs to be 50,000 + 5,000 GST before you are required to register, but you may choose to, etc etc.
Always best to check with a professional though.
Regards…
Laurie
Kooringal
Something to note.
My understanding is that your PPOR does not have to be house you are living in.
You are only entitled to one PPOR, however.Scenario
PPOR for many years, buy new PPOR and rent old one. Do a valuation of old PPOR just in case 6 months after new PPOR purchased.
You do not have to select which property is PPOR until one is sold. You can rent old PPOR for up to 6 years before returning to it if it is earning income (otherwise indefinitely).
If for some reason you choose to sell the old PPOR within this time period, and it has grown more in value than the property you are living in, it can still be your PPOR and no Capital Gains will apply. However the lesser gain on the house you have lived in during this time is subject to capital gains at a later time when you sell it. However this amount is diluted over time as this house becomes your PPOR from the date of sale of the older property.
If you transfer the older property into a trust this option is then closed to you because a CGT triggerring event has occurred.
I am also fairly confident that a PPOR must be in your own name, ie a trust cannot have a PPOR unless it is a ‘bare trust’ and the beneficiary occupies the property (TD 58) or deceased estate.
However, ensure you check with a professional
Regards…
Laurie
Kooringal
Was old PPOR purchased on or before 19 September 1985.
If so NO capital gains will apply. Whether you sell it now or later.
However if you transfer it to a trust it will start to attract CGT from the contract date of sale to the Trust.
Regards…
Laurie
Be very careful transferring PPOR or IP into Trust whose units are purchased by a SMSF. You could be breaching In-House Assets rules (ie more than 5% of total assets of SMSF purchased/leased from a related party), and be found non-complying. Also possibly breaching Sole Purpose Test of SMSF if you intend to pay rent to the trust whose units are owned by the SMSF. Result could be 47% tax on all income to the SMSF instead of 15%.
(Commercial Property, Shares, Units in widely held trusts ie Asgard, are OK to be purchased from a related party and are not included as In-House Assets)
“An In-House Asset of a superannuation fund acquired after 11 August 1999 is: *an asset of the fund that is a loan to, or an investment in a ‘related party’ of the fund, or *an asset of the fund subject to a lease or lease arrangement between the fund and a related party of the fund.”
“Self managed and small APRA superannuation funds can invest in certain related companies and unit trusts that have no borrowings.
The investment can be made in a related company or trust that owns business real property… The company or trust may also own other assets unless they are specifically excluded by the regulations.
Those company or unit trust investments are not in-house assets where they comply with specified requirements including:
(the point to note here is)
*other than business real property, money and a share in a company:
*it has not acquired an asset from a related party of the superannuation fund after 11 August 1999;
*it does not acquire an asset that had been owned by a related party of the superannuation fund in the previous three years (excluding any period of ownership prior to 11 August 1999);
*it does not directly or indirectly lease assets to a related party;”To paraphrase, if the above occurs, the fund must unwind its investment in the related company or unit trust immediately. This would involve further costs, etc.
The PPOR & IP owned by yourselves are owned by related parties of the members of the superannuation fund and you would be transferring ownership after 11 August 1999.
PPOR’s are not business real property, and it is doubtful whether IP’s would be considered business real property (especially if few in number)
Check with a professional before you continue.
Note: Above text from “DIY Superannuation Manual” Chapter 6 published by Taxpayers Australia (latest update June 2003)
Regards…
Laurie
Hilary is correct.
A super fund cannot have a charge over any of its assets. However SMSF can pay cash for all or part of a property providing any other part owner pays cash. The other part owner may use equity in their own home eg to raise the cash.
Members of the SMSF cannot rent the IP. A SMSF must have a Sole Purpose of providing retirement income, a member cannot benefit directly from any of its actions before that time.
Regards…
Laurie
Quote:Laurie, I agree with you on the $600 fee issue, but disagree with all your depreciation calculations.Michael (Michael & Kaye)
What you have since come to realise is what I was trying to demonstrate.
When you purchase an IP, the depreciable items are effectively removed from the purchase price to establish a cost base, and the written down value of those depreciable assets on sale is added back to the cost base.
eg House & land $200K Including F&F of $20K
Cost Base = $180K + Purchase costs not expensed.
Held for 3yrs and depreciation of $9K claimed in those 3 years.(leaves a WDV of $11K)
Sold for $260K
Excluding Purchase costs not expensed, Sale costs not expensed and Div 43 Capital Works prev claimed (if applicable), Cost Base is therefore $191K.
Capital Gain is $69K (adjusted by those other items).
If you look at it, $260K – $200K = $60K
Capital Gain $69K – Deprec prev 3 Yrs $9K = $60K
The benefit is the discount on the Capital Gain.
Regards…
Laurie
Interest only loans free up extra cash so that you can raise your deposit for the next IP more quickly.(Either in cash or increased equity in your own home).
How long are you planning on holding the IP
50 years age a good IP was $8,000 at interest only, today you could pay it off with your bankcard. In the meantime, the extra cash flow would have hastened the accumulation of further properties.
Laurie
Carpet & Blinds, only $7000 less amount claimed as depreciation goes into cost base.
Also $1000 Bank Fees, $200*2 already claimed, balance of $600 into cost base.
Other depreciations $8700 ?
Say purchase price $450,000 and deprec items = $20000 (stove, HWS etc) then cost base = $430000.
On sale add $20000 less deprec claimed.Laurie
Sebastian
One thing to consider if you are holding property for eventual resale, there is no 50% Capital Gains Tax Discount in a P/L company. (Even if there was, you can only get money out of a company as wages or dividends and you are taxed personally on both).
The 50% CGT Discount passes from both a partnership and a trust to you through a distribution. However, each case is individual so check with your accountant.
For added legal protection you may be prepared to accept the loss of CGT Discount in a P/L company as a consequence
andyj
If the unit is for residential accommodation, then it is input taxed, and you will not be able to claim back any GST associated with the purchase or future running costs. It would be ideal to keep it completely separate from any other GST registered business structure that you may have.
As far as valuation is concerned, a buyer will only pay what a buyer believes a property is worth. If a new property owned by a GST registered entity was next to an identical property which was not new, and they were both for sale, they effectively are worth the same. Fred next door is not going to sell his house for 10% less because he is not GST registered.
Regards…
