Forum Replies Created
The building write off of 2.5% per year reduces the cost base of the property, whether or not you have claimed the write off. This is assuming the property is a post 13 May 1997 purchase. There are circumstances where this does not have to occur if it is reasonable and out of your control that you cannot establish the building cost. When the property is sold, the building write off that has, or should have been claimed is effectively recouped because the cost base has reduced by this amount.
hope that clears it for you.
ross
Even though the building write off is recouped upon sale, you have claimed it during the life of the investment at your full marginal tax rate, but get a 50% CGT discount on sale.
The time value of money also places a greater value on claiming as much as you can as early as you can.
And lastly, the building write off is recouped even if you haven't claimed it, although there is now a concession if there is a good reason for not having claimed it.
Generally, the $500 depreciation report will be more than compensated by the increased tax refunds from the depreciation claims. And it is also tax deductible itself, so really $500 is probably costing $350 after tax. A $100k building cost gets you a $2,500 write off each year which is like $750 in the pocket. Thats not including the depreciation on other chattels.A discretionary trust may be the ideal structure, and if so, yes you need to have it established prior to purchasing the business. Definitely need a corporate trustee to provide protection of your IP's & PPOR.
Interest deductibilty on HDT depends upon the deed and your accountants opinion…for certainty, get a private ruling.
Absolutely agree with Marc…though if you do want to get a relatively new car, go for something about 2-3 years old still in warranty, less than 50,000 km. It's as good as new for reliability, etc but the price will be 30-40% less. Don't get a 6 cyl, go a 4, you'll save heaps on running costs, and depreciation is generally better (less) too. A $25k new 4 cyl car will be around 14-17k after 3 yrs.
Whether to lease or buy depends upon your cashflow requirements, ie can you use the cash for something better, ie a deposit on a property? And tax deductibility.
A company may be the ideal structure for you but as Terry stated there are many specific laws & tax laws relating to companies that you should be aware of. You may save a few hundred dollars by setting up the company yourself but how do you know what you are doing is right, what do you do when issues crop up, do you have someone to guide you throught the practicalities of running a company. I think the advice from an accountant who has some idea of your business would be money well spent and it’s tax deductible. It shouldn’t cost you much more than $1000 to get an accountant to setup a company for you.
A company can give you access to more deductions than a sole trader/partnership, but on the flip side you have to be careful about how you use the company money for any personal use. Also limited liability is the main legal advantage of the company. If you would like some personal advice then shoot me an email. MOre than happy to help out.
ross
You can’t directly defer the capital gain, as Amanda quoted, but you may be able to reduce the CGT by reducing/deferring your other income or increasing/bringing forward tax deductions for the year that the CG occurs, as CG are just added to your other taxable income and then tax is calculated at the resulting income.
The same concept applies to FBT, in that there must first be an employment relationship.
If there is no employment relationship and thus no FBT, whether or not to hold the assets in trust will come down to issues such as what , if any, is the tax benefit of holding the assets in the trust, is it just for asset protection, if so what other assets are held in the trust, when sold the assets may have capital or revenue gains or losses, how will these be of benefit or minimised with your other circumstances. What if , or when your circumstances change, how will this change the tax and asset protection of the trust assets?
hope this helps.
Hi AJS,
Couple of issues,
Firslty FBT won’t be an issue if you or any related persons are not “employed” by the trust, as FBT only applies to employment. Generally, if you are just investing in property then you wouldn’t be employed by the trust.
But, the ATO has cracked down on the scheme of your own trust renting it’s property to you and claiming tax deductions. Basically, you can’t do it. But the trust beneficiaries/unit holders will still be liable for CGT on sale even though no tax benefit will be gained throughout.
Hope this helps
Ross
Hi Picklesam,
Couple of questions to clarify your situation.
Who is going to own the IP, you or your company?
Why does your company pay your rent?
Who has the loan for the IP, you or your company?
Is it a company (Pty Ltd) or just a business in your name?
Happy to help, but just didn’t quite understand your post clearly.
Ross
HI LBH,
Two major problems.
First, a company isn’t eligible for the 50% CGT discount.
Second, if the company leases the property to you to live in then the company will pay FBT at 46.5% on the lease.
So, pretty much a no go all round.
Companies are good for running a business or acting as trustees, but not much else.
Hope this helps.
Ross
If you own the property jointly and your income is in a higher marginal tax bracket, then salary packaging rental expenses gets you a benefit equal to the difference in your marginal tax rates.
ie,
If your tax rate is 46.5% and your partners is 16.5% then the benefit is 30% of what you can salary package.
hope this helps.
ross
Hi devo,
He’s right, it doesn’t matter where the money comes from but who owns the property.
regards
ross
Hi devo,
He’s right, it doesn’t matter where the money comes from but who owns the property.
regards
ross
Thanks for the referral Richard. Much appreciated.
Actually HookhamC & Pro Investor, I am moving to just north of Townsville at Easter and so am looking for some more clients in the north queensland area. Would be more than happy to help you guys out.
Ross
Hi devo,
Your capital gain will be proportional based on the time you live in it V’s time rented. For example, if you rented it for 6 years and then lived in it for 4 years, taxable capital gain would be 60% of the total capital gain. Then the 50% discount would apply, so really only 30% of the capital gain will be taxable.
The new rooms added will increase the cost base, but you can’t claim any write off on these as at that time you won’t be renting it. But hopefully the additional cost will be more than compensated by an increase in the property value.
Hope this helps.
ross
Hi devo76,
You are right that only buildings built after 87 can claim the special building write off over 40 years (2.5%PC), but also any building structure/capital improvements can also, depending upon when they were built, not when you buy the property. As JFisher said, it’s best to get a Quantity Surveyor report, unless you have the actual costs available.
ross
It’s written in pretty plain english and easy to understand. Covers most areas in basic terms and a good investment if you’re not a tax accountant or very tax literate.
Ask him to explain why he prefers the SMSF.
Are you within 5 years to retirement?
What are your investment goals/plan?
Dale Gatherum Goss’s “Trust Magic” is a really good trust resource written in normal language, not “legal speak”
Hi Carpe_diem,
Send me an email and I’ll be happy to help out, or point you in the right direction.
regards
Ross
