Hi fxtrader8,

your correct in that the last two items on your list or deductible against your rent income (along with a bunch of other things)

The only other item on your list which is deductible against the rent is Loan fees. Generally, fees which occur prior to your making the first repayment on the loan are considered borrowing costs. Which are written off over the first 5 years of the loan. This type of cost is commonly referred to as borrowing costs. Monthly or annual admin fees are fully deductible in the year in which they occur.

The remaining costs are not deductible against the rent income. They are however deductible against the sale price of the property for the purposes of capital gains tax.

The ato website has a great publication which will outline everything else you can claim “rental properties 09/10” :
http://www.ato.gov.au/individuals/content.asp?doc=/content/00237831.htm

Actually there’s another way.. most banks will take cash as security for a loan.

If the 20% of the IP secured against your PPOR is $100k, when you sell the PPOR, rather than using the proceeds to pay out that 100k, put 100k in a separate account. Then let the bank take that 100k in the account, as security against the 100k they’ve lent you. Then when you buy your PPOR with the remainder of the proceeds of the sale of the old PPOR, refinance the 100k for the IP with security against your new PPOR, and you will have access to your 100k deposit again.

I’ve done this myself it will work.

I guess your already aware that there’s nothing legitimate about this. Even without knowing the specifics, I’m certain that the receipt he gives you will not be worth the paper its written on simply because he cannot give you a legitimate receipt and just choose not to charge you GST because he’s a nice guy.

Its ultimately your call, personally I wouldnt take the offer, might save you $750 for now but will almost certainly end up costing you in the long run…

hi not_so_lucky..

Am I correct in assuming that the issues are the fault of the steel frame supplier? is that who you are considering seeking compensation from?

If their stuff up has cost you (in the region of) $10,000, then offering to go “off the books” doesnt seem like much of an offer.

To answer your question, yes this will effect your chances at compensation. Its not so much that your not paying GST, its that your paying cash so it “never happened”. As pinkboy has said, paying cash off the books pretty much negates your chances at any future court action. (which might be why they offered it to you?) IMHO, you have the choice of paying $8250, and a good chance of getting it all back.. or paying $7500 and having no chance of getting it back.

You’d have to choose either MYOB or quickbooks to ensure compatibility with your accountant. Quickbooks is better than myob for managing personal investments like rental properties. MYOB has a larger market share (more people use it), and can be used in the same way, but personal investment users are not ‘targeted’ as with QB. I would thoroughly recommend downloading the trial versions of both, and seeing how you feel. Both programs try to “conceptually organise” your accounting information to make it easier for non-financial types to understand, however they both organise the information differently. If the way you think does not fit their ‘concept’ you will find the software frustrating to use. try both – see which feels best.

Regarding the comparison of seperate properties, list each property as a seperate “job” (in either MYOB or QB), then you can print P/L’s for each job, and at least compare between them. Whether either program will generate a report to compare between two properties I’m not sure. But you can export your “job p/l” to excel and do the calcs yourself.

Sorry.. not very helpful.

I’d vote for the offset account..

The only disadvantage I can think of is slightly higher bank fees. but ultimately having an offset account just gives you more options in the future. Conceptually.. and offset account is the same as principle reduction, it just gives you more options in the future.

re: 2010 deductibility:
borrowing costs
interest
and rates

will be deductible.. but they’ll all be pro-rata.. (minimal)

Hi ijc

Personally I dont think you have anything to worry about.

The tax office will have already benchmarked your `86 property against other comparable properties, I daresay if the high depreciation was going to flag that property for audit, it would have happened already. Inclusion of another property in your tax return will not bring further scrutiny to the first. The fact that dep’n on your `86 property is twice that of your `92 property does not in itself mean the value of the prior has been overestimated.

That said, even if you were audited, I still dont think you have anything to worry about..The specific criteria for doing that kind of valuation is:

http://www.ato.gov.au/individuals/content.asp?doc=/content/00183243.htm
see the “where do you get the information” section, down the bottom.

So you tick the boxes there.

even if the Tax office amended that valuation to $40k.. You’ve claimed $19200 in depn in the preceding 6 years based on the $80k, so that would be altered to $9600. So if you were in a 30% bracket you’d be up for $2880 in tax over the past 6 years. No penalties would be applied because you weren’t trying to misrepresent the situation to avoid paying tax, you simply made a mistake. Interest would be applied, but if you stated your case (as above) I’m certain the tax office would remit that too.

So worst case scenario your up for ~$3k … not pleasant, but not going to put you in jail either.

As there’s only a couple more years left on that depreciation schedule.. I’d just carry on with it.

Disclaimer: I dont speak for the tax office, cant guarantee they wont audit you (however unlikely) or that they wouldnt apply penalties & interest (even more unlikely)

Hope that puts your mind at ease!

You will always get more depreciation on a more recently constructed house. even when using the straight-line method, (usually dim val is used) plant and equipment is written off over a shorter period, resulting in larger deductions in the first years of the depreciation schedule.

Anything pre july 85 is not depreciable. july 85 to sept 87 capital works is depreciable over 25 years.. so if it was constructed in august 87 you’ll get 4% for the next couple of years.. the 25 years will expire in 2012.

There’s not really an effective way to estimate depreciation, because it can vary considerably. That said, because depreciation is a non-cash expense, it will only effect your cashflow through your tax advantage. So say your in a 30% tax bracket (after rental losses are applied) and you estimate $6000 for depreciation, but the actual cost turns out to be $7000 – your cashflow projection would only be out by $300 for the year.

I’ve spent a little time thinking about this, and I have to admit, I’m unsure why the order in which you subdivide and demolish would be pertinent to whether or not you are in business.

What if the existing building sat astride the new boundary line between the two new blocks? then you would have no choice but to demolish before you subdivided.

The criteria generally considered in determining whether an activity is a business are:
-significant commercial activity
-a purpose of acting in a commercial way
-an intention to make a profit
-a reasonable prospect of profitability
-repetition or regularity of activity
-reasonable size and scale
-conformity with normal business practice
-existence of a business plan
-keeping of detailed business records
-commercial sales of product
-exercise of knowledge or skill (Taxation Ruling TR 97/11).

I would argue that the simple fact that you have owned this property for > 7 years suggests that you didnt purchase it with the primary purpose of developing the property through subdivision. Sure, that may have been a secondary purpose, but it would appear your primary purpose was to provide yourself a home.

That said, just because I dont understand the problem, does not mean that no problem exists. I would ring the ATO again, and ask them specifically about the order in which you subdivide and demolish. If you can ask them to provide a reference something on their website, or even a Taxation Ruling/Determination, and post it here, I would really appreciate it. We’re all here to learn after all.

Hi Scab,

In your specific situation, I’m not aware of any specific rules regarding capital works.

What you might be referring to is the 4% rate for > 10 apartments which are used for “short term” accommodation (ITAA97 sec 43-145 )
“short term” is a little ambiguous… because it does say “ie apartment buildings” which arent necessarily short term…

Hope that helps..