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All I can say is thank you so much for all the advice and I will def look at all options!! So many!!! I think that selling the neg geared property and making a loss wouldn't be so bad after all too. At the end of the day though i have no problem paying lots of tax, cause as said by someone earlier, "if you're paying lots of tax it's because you're earning lots of money". Ultimately wealth creation is our priority, for us and our kids.Thanks everyone!
Jo.
Ps…..continue with the advice if ya think of any more…colinnewland wrote:Keep the +CF properties and sell the negative CF property. Thats makes far more sense than selling you better performing properties.
As or your own home, have you considered moving out and leasing your PPOR and leasing/renting a similar style property for less money? You will find that renting a property of the same standard is usually cheaper and you can pay for it from the increased income from renting your current home PLUS you may be able to release the trapped equity in that property as well to generate additional properties.
Do not be fussed about negative gearing, you should be looking to pay as much tax as possible….as this means that you are earning HEAPS of money = cash IN after all expenses. In addition, the banks LOVE +CF properties AND will allow you to borrow more = buy more +CF properties and make more cash IN = more tax = better investments.
When you do your cals, base them on figures that do NOT include tax deductions as this will give you a truer +CF v -CF comparison. You MUST assume that the property can provide +CF if/should you stop work (due to loss of a job or a desire to stop work). If you base your figures on tax deductions, it assums that you will have additional employee (plus other income) against which to deduct that figure. If you stop work then is nothing to deduct the tax deductions…even thu you can carry them forward for a number of years (7 I think).
So, to recap:
1. Sell the negatively geared (non performing) property.
1a. Pay down the other mortgages if you see fit to increase the +CF effects of the better properties.
2. Move out of your current home into a similar property and pay less (in rent v mortgage) per month.
3. Rent out your current home to gain additional rental income and gives you the ability to claim that properties tax write-offs whci are currently not allowable).
4. Borrow against the trapped equity in your current home to purchase additional POSITIVELY geared property.
5. Place the NEW purchases in a trust.
6. Do NOT transfer the +CF geared properties into a trust so you save the transfer fees which can be better used elsewhere.
7. Buy ALL future properties with a trust so you retain the ability to borrow with the banks, who will usually require a personal guarantee. (NOTE: the banks view a guarantee as an UNREALISED debt, as such, it does not [yet] form a part of any [current] obligation to a debt (mortgage).Have def considered moving out of our ppor and renting. My hubby is also in the process of starting to do some contract work from home so we'd have to set him up as a sole trader abn etc, so would this enable us to then claim some of the rent we'd be paying as a tax deduction? Can't sell the neg geared property. Stuffed up big time with that when we fixed the morgage for 5 yrs and we'd lose too much money if we sold it now. 2 yrs from now we could.
Terryw wrote:I think you will have to do the sums. It may cost you XX now, but it will save you ZZ per year in tax sort of thing. You then have to decide is it worth doing.You could possibly lease the property to a trust and then allow the trust to on lease it at higher rates. But you would have to do everything at arms length for tax reasons.
The idea of selling half to the trust 1 yr and the other half the next, i think that might be worth looking at too….stamp duty would be the same but you think it could reduce the tax on the income substantially?
quickchick wrote:Well done on buying a positive cashflow property! Not easy to do.I assume your other properties are negatively geared?
If so, I think you are saying you plan to sell your fantastically performing property, to fund your losses from the poorly performing properties.
WHY WOULD YOU DO THAT!(Sorry for shouting!)
Wouldn't logic dictate you'd be better to get rid of one or some of the underperformers?
And keep your best property?
That's what I'd do, at least if you realise a loss you won't pay tax, and you'll keep your great property which should continue to appreciate as well as giving you cashflow!
Or you can keep the poor performers in the hope they may go up one day…. and have your borrowing $$ tied up in property that is not helping you realies your goals.
If there is a reason to sell the CF+ property I'm not seeing, another thought is re-finance and take some equity out of your good property, to help you with the losses. (As Terry suggested.)If you do sell your positive cashflow and reap your profit, see Terry's numbers.
If it is your only income, you will be taxed as though you earned $80,000, ie you may pay $20,000 to $30,000 tax.
(Check with an accountant, I'm guessing.)It is better for that to be in your name, as your husband will be on a higher tax bracket ie will pay more tax.
If you bought it in a family trust, you can choose who the beneficiaries will be, ie any charity listed as a beneficiary on your family trust will be given tax-free dollars, and you can choose which percentage goes to who according to their tax brackets.
But once you have bought it in your name, paying stamp duty to transfer the title is going to negate any benefit.Hi there! Okay some more info is required especially in regard to 'why?'
Firstly, the property has a 700k morgage on it, hence a recent rate rise caused the repayments to jump nearly $1000 per month and yes it still does produce a good +CF after that but my losses are now higher and I already have 30K of losses from previous years that i need to use at some point.
Secondly I have 2 other properties in both my and my hubbys name, one that is also a good +CF, the other neg geared and between the 2 they balance my income to 0 so as not to effect my Family payments. (I have 2 young kiddies).
That is why I though by selling this one to a trust, I still have the property working for me, the rent will cover the repayments, upkeep, PM fees and costs ass with the trust and prob balance pretty close to neutral. Income (if any) can be distributed where we need it, and the profit i get out of it would eliminate my morgage on my PPOR entirely and some therefore eliminating a non tax deductable debt.
So maybe that will help with the why, but losing 50k in the process, am I really losing or when you bring into play that we won't be forking out 1000 bucks per month on our own home loan is it really a loss???
Also does anyone know, can you lease a property to a trust? And have the trust control the income that comes in? Another possible way to distribute funds??
Thanks everyone for the posts too…..
Terryw wrote:Not many ways to avoid CGT.At least you are on a low income, so the effect will be less. If you have a $200,000 gain then take off buying and selling costs, say $40,000 and then apply the 50% CGT discount = a taxable gain of $80,000 this would be added to your other income.
Selling to a trust won't assit with this, CGT will still apply at market rates, stamp duty as well.
Any loss by the trust will be trapped in the trust, land tax may also be payable depending on the state you are in.
It may still be a good idea though as it will release equtiy which you can use to pay down non deductible debt. But get advice first to make sure it passes ATO scrutiny.
Thanks for your time and reply.
When you say any loss by the trust will be trapped in the trust, is that good or bad? I'm assuming that it would be bad for my hubby as it then can not reduce his taxable income? But would it be good or bad for me having zero income?I am interested in doing a workshop about Tax Liens, and you mentioned you had done a 2 day workshop here in Australia that covered that topic? Do you know of any up coming workshops?
I'm just looking at positively geared properties myself. Don't know much about them but check out properties for sale in Karratha and Port Hedland that are leased. Good returns of over 10%.
I've got a depreciation statement prepared for tax time, but what do you mean by reducing your cost base and increasing future cap gains tax?
