Forum Replies Created
Hi Condog,
I think you may have misinterpreted what your accountant was saying. The pattern of distributions test is to do with the trust loss measures and doesn’t usually have any consequence if you are not trying to inject income into the trust or use other measures to access trust losses.
If the trust is a discretionary trust then the fundamental principle is that the trustee has absolute discretion to distribute income and capital to whomever they wish. The ATO have no issue with this principle, otherwise the validity of every discretionary trust would be comprimised, and some very unhappy people would make the minds known.
If the trust is a hybrid trust then the issues do become more complicated and it is best to speak with your accountant to decide how you wish to interpret the rules on distributions.
Your accountant should explain the advantages and disadvantages of using both trusts and other structures to hold your invstments and guide you to make the choice that suits your circumstances best.
I would disagree that you need four properties before it is viable to setup a trust. I believe that it is very important to have an investment plan and establish your structure early. This way you can be in a better position to deal with issues as they arise and make the best possible decisions. Once the investments are owned by an entity there is practically no going back. So I think waiting until you own 4 properties is waiting too long, and you’ll miss out on the benefits that trusts offer. Obviously the setup cost for trusts is the biggest obstacle, but ongoing accounting/tax fees should not be much more than if you hold investments outside of a trust. And trusts do not require auditing either.
Hope this helps.
Ross
Self Managed Super Fund establishment would be $750 inc GST.
Ongoing costs are;
ATO Supervisory Levy – $45 ($150 from 2007 FY onwards)
Annual Audit & Tax Return depends upon the level and complexity of the transactions and bookkeeping, but as a guide most of my current clients fees are below $1000.Basically, the super fund tax return and accounts are similar in time/cost to a small business except that the SMSF must have the accounts audited.
Depending upon the value of assets in the fund, an SMSF can be cost effective, but an advantage can be the control over your investments and superannuation money.
Email me directly if you need any further help/advice on setting up a SMSF.
Ross
Remember that Superannuation is not an investment itself, just a tax structure. If you want to invest in property and also take advantage of the new super rules, why not consider a SMSF?
Stamp duty will be unavoidable in most states that I’m aware of.
CGT maybe exempt for the brother if it’s his PPR or has been.
Hi Bez,
I’t looks like you’ve done well to have saved $12,000 on your income, so you probably have a good money ethic. Why not also look at investing in yourself through training and education to increase your income which can then flow into increasing your investment power. Maybe also look at relocating to a higher paying job, if it suits you personally, family, etc. As the others have indicated, sometimes the biggest limitation is your own mind, so broaden your options, and with the will you’ll find a way.
best of luck
If you’re thinking about buying a PPR then renting it after a certain time to avoid CGT, then the six year absence rule may apply, but there is and never has been any set period of time to regard a property as your PPR. It is a matter of fact, it either is or isn’t your PPR, but obviously the longer the period the more likley that it is genuine and easier to convince the ATO.
As terry said, paying out debt and taxable income are two unrelated actions.
You may pay out the debt, but any tax profit used to pay out the debt still has to be distributed to a beneficiary and taxed in their hands, even if no cash passes hands.Thanks for the responses guys
Hi ET,
You can claim holding costs being interest, rates, insurance, etc as long as your intention is to rent the property once practical.
regards
ross
Hi Eve,
Absolutely,
The Net Capital Gain is added to your other taxable income, so it can also be reduced by any tax deductible expendtiure, ie; donations, courses, etc. Also salary sacrifice into super to reduce your taxable salary is an effective way to reduce CGT.
As Terry said,
if you did not live in the property before it became an IP, then CGT is based on the proportion of the time that the property was an IP. So living in it now will reduce the CGT when you sell it, but you can only have one PPR at a time. So depending on the potential capital growth on your current PPR, will determine which property should be claimed as the PPR. Obvioulsy you want the PPR to be the property with the rgeatest capital growth.
Run sum figures and see what you come up with.
GST, yes
GST status is determined by the seller, ie; if they’re registered, except for GST free items, like food, medical
Sorry mate,
But I have recently suggested and implemented a “no tie” policy in our office, and has been very successful, so I can’t offer any suggestions. I think ties are ridiculous.
But good luck, as there are many out there who will disagree with me.
Hi Munchwood,
Why not rent out your Kalgoorlie house, and rent a house as your residence in Perth, whilst the prices are so high,
1. Saves stamp duty,
2. Saves borrowing costs,
3. Saves legal fees,
4. Saves buying an overpriced Perth house,
5. You can retain the CGT exemption on the Kalgoorlie house,
6. The Kalgoorlie house debt will become deductible,
7. The Kalgoorlie rent may help with paying the Perth rent,I can’t really see why you wouldn’t rent, but are there any other reasons that I haven’t mentioned here, anyone?
Hope this helps.
Yeah bummer,
And many other negative geared property investors will find that their next tax return (2007) doesn’t come with such a big refund cheque, due to the reduction in marginal tax rates and increases in thresholds. Most people will now be on the 31.5% marginal tax rate. All the more reason to not invest for tax purposes alone.
Hi Learning curve 2,
The $1000 you pay back is stamp duty and so contributes to the cost base of the property for CGT purposes. So there is no immediate tax benefit, it only reduces your capital gain if you sell, which may not be an issue anyway if you sell within 6 years.
hope this helps
I agree with Richard,
A SMSF cannot have an interest in property that itself has any form of gearing or security held against it. It doesn’t matter if there is no recourse to the SMSF.
Hi Summersky,
Depreciation is the reduction in the value of an asset, based on tax depreciation rates. It is a tax deduction, not an offset, and so reduces your taxable income. Your tax liability is calculated on your taxable income, and if you have paid more tax than what you now need to, you’ll get a refund.
The tax benefit of depreciation is the amount of depreciation claimed times your marginal tax rate, not your average tax rate. Depreciation rates are advised by the ATO, and usually range from 5% up to 40%, depending on the useful life of the asset.
The special building write off works the same as depreciation but is set at 2.5% prime cost for most buildings & other capital works.
If you’re not claiming depreciation you’re throwing money down the drain. Depreciation gets you a non cash deduction at your full marginal tax rate, but is only taxed at 50% of your marginal tax rate when added back due to CGT discount. Especially the capital works write off, if you don’t claim by choice, then it still reduces the cost base for CGT.
Hi Karen,
A couple of very important things to consider here;
1. If you rent it prior to living in it, then when you sell there will be CGT on a proportional basis of the time rented compared to total ownership period.
2. If you live in it first and occupy as your PPOR, then rent it, when you sell you can claim the PPOR exemption for up to 6 years, if you choose and are eligible, ie you can only have one PPOR at a time.
3. To gain the PPOR exemption you must actually occupy or genuinely intend to occupy the premises. There is no black & white rule as to how long, just that you occupy it genuinely as your PPOR.
hope this helps
